Question

The common stock of Wiley and Sons has a beta that is 25 percent larger than the overall market beta. Currently, the market risk premium is 9.5 percent while the U.S. Treasury bill is yielding 4.7 percent. What is the cost of equity for this firm?

Answer 1

Answer:

Cost of equity will be 16.57 %

Explanation:

We have given stock of Willey and sons has a bta of 25 % larger than over all market beta

So $\beta =1+25% of 1=1+0.25=1.25$

Market risk premium = 9.5 %

Treasury bill yielding = 4.7 % = 0.047

We have to find the cost of equity

Cost of equity = Treasury bill yielding + $\beta \times market\ risk\ premium$

So cost of equity $=0.047+1.25\times 0.095=0.1657=16.57$ %