Reference no: EM133094791

Question - Analysts want to estimate the cost of equity for TAR Corporation to use later in a long-term firm valuation analysis. They believe that a beta based on analyses of recent past returns is appropriate to assess TAR's risk level in the future. They found from recent stock return analyses that: the variance of TAR's returns is 0.25, the variance of the market returns is 0.16 and the correlation coefficient between TAR and the market returns is 0.888. The historical market return is 7.50%.

Treasury Yield

1-year T-STRIPS Yield     0.15%

2-year T-STRIPS Yield     0.45%

10-year T-STRIPS Yield     2.50%

Required - How much is the cost of equity for TAR Corp?