H2 15. Suppose stock in A has a beta of .80. The market return rate is 8.8percent, and the risk-free rate is 6 percent. For stock A, its last dividendwas $0.5 per share, and the dividend is expected to grow at 8 percentindefinitely. The stock currently sells for $80 per share. What is the costof equity capital using SML method?8.17%8.24%8.32%8.53%8.63%Above answers are all not correct.

The cost of Capital of an Equity share is the minimum return an investor expects from an investment…

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Business

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equity capital using SML method?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 11P

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Concept explainers

Market Efficiency

Market efficiency refers to the market's ability to provide investors with all available information about investment options for buying and selling securities. Market efficiency reflects the true value of securities without undervaluing or overvaluing them. When the quality and quantity of information increase, the market becomes more efficient, allowing it to reduce arbitrage and obtain higher market returns from investment. In a well-functioning market, everyone receives all information completely and immediately at no cost. It opens up a plethora of opportunities for investors to access various investment options.

Question

15. Suppose stock in A has a beta of .80. The market return rate is 8.8
percent, and the risk-free rate is 6 percent. For stock A, its last dividend
was $0.5 per share, and the dividend is expected to grow at 8 percent
indefinitely. The stock currently sells for $80 per share. What is the cost
of equity capital using SML method?
8.17%
8.24%
8.32%
8.53%
8.63%
Above answers are all not correct.

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Assume that the risk-free rate of return is 4% and the market risk premium (i.e., Rm - R;) is 8%. If use the Capital Asset Pricing Model (CAPM) to estimate the expected rate of return on a stock with a beta of 1.28, then this stock's expected return should be A) 10.53% B) 14.24% 23.15% 6.59%
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