Answer:
Risk-free rate (Rf) = 5.00%
Beta (β) = 1.05
Risk premium = 6.00%
Ke = Rf + β(Rm - Rf)
Ke = Rf + β(Risk premium)
Cost of common stock (Ke) = ?
Ke =5 + 1.05(6)
Ke = 5 + 6.3
Ke = 11.30%
Explanation:
The firm's cost of common stock equals risk-free rate plus beta multiplied by risk premium.
