The cost of ordinary equity for a firm would be 18% if the risk- free return is 5%, the market risk premium is 10%, and the firm's beta is 1.3.

Question

Quizplus · Accepted Answer

The cost of ordinary equity can be calculated using the capital asset pricing model (CAPM) as:
Cost of Equity = Risk-Free Rate + Beta x Market Risk Premium
= 5% + 1.3 x 10%
= 18%

Therefore, the given statement is true.

The Cost of Ordinary Equity for a Firm Would Be