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A morningstar.com article on 1/10/19 listed the following estimates of the market risk premium on large cap stocks: Black Rock 7.0% Bogle 5.0% GMO <4.1%>
A morningstar.com article on 1/10/19 listed the following estimates of the market risk premium on large cap stocks:
Black Rock 7.0%
Bogle 5.0%
GMO <4.1%>
JP Morgan 5.25
Morningstar. 1.8%
Research Affiliates 0.7
The historical equity risk premium for large cap stocks in the United States is 7.2%. Additionally, the current US treasury T-Bill yield is around 2.45%.
1. What is the cost of capital for equity for Kroger if its Beta (per yahoo.finance) is 0.89?
Show the formula and calculations.
2. Explain why you chose the number you used for the market rate premium in the above answer.
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