Diddy Corp stock has a beta of 1.0, the current risk-free rate is 5%, and the expected return on the market is 15.5%. What is Diddy's cost of equity?
A) 15.50%
B) 14.20%
C) 18.50%
D) 16.30%

Question

Quizplus · Accepted Answer

Diddy's cost of equity can be calculated using the Capital Asset Pricing Model (CAPM): Cost of Equity = Risk-Free Rate + Beta * (Market Return - Risk-Free Rate). Substituting the given values: 5% + 1.0 * (15.5% - 5%) = 15.5%.

Diddy Corp Stock Has a Beta of 1