Example of capital asset pricing modelkk ltd is an all, Ask an Expert

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Example of Capital Asset Pricing Model

KK Ltd is an all equity firm whose Beta factor is 1.2, the interest rate on T. bills is currently at 8.5% and the market rate of return is 14.5%. Conclude the cost of equity K_e, for the company.

Solution

R_f = 8.5% , R_m = 14.5% and Beta of equity = 1.2

K_e = R_f + (R_m - R_f)B_E

= 8.5% + (14.5% - 8.5%) 1.2

= 8.5% + (6%)1.2

= 15.7%

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Category:- Basic Finance
Reference No.:- M9520073

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