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Estimate the expected return on the stock

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Reference no: EM132641953

In December 1995, Boise Cascade's stock had a beta of 0.95. The Treasury bill rate at the time was 5.8%, and the Treasury bond rate was 6.4%. The firms had debt outstanding of $1.7 billion and a market value of equity of $1.5 billion; the corporate marginal tax rate was 36%. The historical risk premium for stocks over Treasury bills is 8.5% and the risk premium for stocks over Treasury bonds is 5.5%.

a. Estimate the expected return on the stock for a short-term investor in the company.

b. Estimate the expected return on the stock for a long-term investor in the company.

c. Estimate the cost of equity for the company.

Reference no: EM132641953

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