Southern Home Cookin' just paid its annual dividend of $.65 a share. The stock has a market price of $26 and a beta of 0.8. The return on the U. S. Treasury bill is 4 percent and the market risk premium is 13 percent. What is the cost of equity?

Question

Business

Paulina Howe

5 August, 05:06

Southern Home Cookin' just paid its annual dividend of $.65 a share. The stock has a market price of $26 and a beta of 0.8. The return on the U. S. Treasury bill is 4 percent and the market risk premium is 13 percent. What is the cost of equity?

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Answers (1)

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Ashtyn Maxwell · Answer 1

Here the COE (cost of equity) is 14.4%

Explanation:

Given information -

Beta-.8

Treasury bill return - 4%

Market risk premium - 13%

Formula for taking out cost of equity -

Return on treasury bill + Beta x Market risk premium

= 4% +.8 x 13%

=.04 +.8 x. 13

=.04 +.104

=.144

Multiplying by 100 to make it in percentage

=.144 x 100

= 14.4%