Example of capital asset pricing model, Finance Basics

Assignment Help:

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 Ke, for the company.

Solution

Rf = 8.5% , Rm = 14.5%  and Beta of equity = 1.2

Ke   = Rf + (Rm - Rf)BE

       = 8.5% + (14.5% - 8.5%) 1.2

       = 8.5% + (6%)1.2

       = 15.7%


Related Discussions:- Example of capital asset pricing model

Equities and sophisticated investors, Assignment Gary and Beth have acc...

Assignment Gary and Beth have accepted the asset allocation that you have given them, but are now looking to you to give them some advice on what stocks they should purchase. R

Describe the accruals-based financial statements, On 1 January 2008, a youn...

On 1 January 2008, a young artist called Michelangelo signed a contract with a charity named Art Angels, which supports young artists to do large projects. The agreement requires M

Micro economics, effect of gdp in the domestic market

effect of gdp in the domestic market

What are the types of money and bank regulations, What are the types of Mon...

What are the types of Money and Bank Regulations? Types of Money : a. Commodity money b. A commodity-backed money c. Fiat money Bank Regulations: a. Deposit i

Limitations of credit cards - source of finance, Limitations of Credit Card...

Limitations of Credit Cards - Source of Finance Limitations of Credit Cards as a Source of Finance are as follow: i) These cards lead to overspending on the part of the hol

Disadvantages of floatation of new shares, Disadvantages of Floatation of N...

Disadvantages of Floatation of New Shares 1. The cost of getting a quotation is high, mainly when a new issue of shares is completed and the company is small. It means that su

Routine functions - finance function, Routine functions - Finance Function ...

Routine functions - Finance Function For the effective execution of the managerial finance functions, schedule functions have to be performed.  These decisions relate systems

Determinants of required rate of return, Determinants of Required Rate of R...

Determinants of Required Rate of Return 1.Risk free rate - This is the interest rate such would exist on default free securities like Treasury bills and bonds. Risk free

#accounting., why prospective buyers need to see accounting information

why prospective buyers need to see accounting information

Write Your Message!

Captcha
Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd