Diddy Corp. stock has a beta of 1.3, the current risk-free rate is 7 percent, and the expected return on the market is 12.50 percent. What is Diddy's cost of equity? (Round your answer to 2 decimal places.) Cost of equity
Diddy Corp. stock has a beta of 1.3, the current risk-free rate is 7 percent, and the expected return on the market is 12.50 percent. What is Diddy's cost of equity? (Round your answer to 2 decimal places.) Cost of equity
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
![**Diddy Corp. Cost of Equity Calculation**
**Scenario:**
- **Beta:** 1.3
- **Current Risk-Free Rate:** 7%
- **Expected Market Return:** 12.50%
**Objective:** Calculate Diddy Corp's cost of equity using the Capital Asset Pricing Model (CAPM) formula.
**CAPM Formula:**
\[ \text{Cost of Equity} = \text{Risk-Free Rate} + \beta \times (\text{Market Return} - \text{Risk-Free Rate}) \]
**Instruction:** Round the answer to two decimal places.
---
**Interactive Component:**
- **Field for Input:**
- **Cost of equity:** [Input Box] %
Further instructions: Use the provided input box to calculate and enter the cost of equity for Diddy Corp. This interactive component allows for student engagement in applying financial concepts.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fdcd289bd-54ab-4e8a-962a-c9351c6f586f%2Ff48cc466-2953-4d36-a7b6-89bffb029f47%2Fszgw2fh_processed.jpeg&w=3840&q=75)
Transcribed Image Text:**Diddy Corp. Cost of Equity Calculation**
**Scenario:**
- **Beta:** 1.3
- **Current Risk-Free Rate:** 7%
- **Expected Market Return:** 12.50%
**Objective:** Calculate Diddy Corp's cost of equity using the Capital Asset Pricing Model (CAPM) formula.
**CAPM Formula:**
\[ \text{Cost of Equity} = \text{Risk-Free Rate} + \beta \times (\text{Market Return} - \text{Risk-Free Rate}) \]
**Instruction:** Round the answer to two decimal places.
---
**Interactive Component:**
- **Field for Input:**
- **Cost of equity:** [Input Box] %
Further instructions: Use the provided input box to calculate and enter the cost of equity for Diddy Corp. This interactive component allows for student engagement in applying financial concepts.
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