Problems

1 The expected rate of return on the market portfolio is 20 percent. The riskless rate of interest is 10 percent. The beta of a multinational company is 0.5. What is the cost of this company's common equity?

2 At present, the riskless rate of return is 10 percent and the expected rate of return on the market portfolio is 15 percent. The expected returns for five stocks are listed below, together with their expected betas.

Stock

Expected return

Expected beta

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