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Estimate the cost of common stock

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Reference no: EM132569471

To estimate the cost of common stock using the Capital Asset Pricing Model, we have:

Rs = rRF + (RPm)bi

Where:

rRF = risk-free rate

RPm = current market risk premium, which is the required market return minus the risk-

free rate.

Bi = The stock's beta coefficient, which measures the stock's relative risk. The

subscript I signifies Stock i's beta.

Question 1: Assume that rRF = 10%, RPm = 5.5%, and company XYZ's bi = 1.2%. Calculate company XYZ's cost of equity.

Reference no: EM132569471

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