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Risk-free rate is 6%, market return is 14%, and the stock's beta is 1.5. CAPM cost of equity is:
A12%
B14%
C21%
D18%
Answer & Solution
Correct answer: D. 18%
1. Ke = Rf + β × (Rm − Rf) = 6% + 1.5 × (14% − 6%).
2. = 6% + 1.5 × 8% = 6% + 12%.
3. Result = 18%.
_Source: ICAI BoS CA Inter Paper 6A, Ch 4 "Cost of Capital", §7_
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