The risk free rate of return is 2.5% and the market risk premium is 8%.Penn Trucking has a beta of 2.2 and a standard deviation of returns of 28%.Penn Trucking's marginal tax rate is 35%.Analysts expect Penn Trucking's dividends to grow by 6% per year for the foreseeable future.Using the capital asset pricing model,what is Penn Trucking's cost of retained earnings?
A) 16.4%
B) 17.7%
C) 19.6%
D) 20.1%

Question

Quizplus · Accepted Answer

The Answer of The risk free rate of return is 2.5% and the market risk premium is 8%.Penn Trucking has a beta of 2.2 and a standard deviation of returns of 28%.Penn Trucking's marginal tax rate is 35%.Analysts expect Penn Trucking's dividends to grow by 6% per year for the foreseeable future.Using the capital asset pricing model,what is Penn Trucking's cost of retained earnings?
A) 16.4%
B) 17.7%
C) 19.6%
D) 20.1%

The Risk Free Rate of Return Is 2