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Assignment 5, Question 2: Cost of common stock equity CAPM J&M Corporation common stock has a beta, b , of 1.2. The risk-free rate is

Assignment 5, Question 2:

Cost of common stock equityCAPM

J&M Corporation common stock has a beta, b, of 1.2. The risk-free rate is 9%, and the market return is 14%. (round to 1 decimal place)

a.Determine the risk premium on J&M common stock.

b.Determine the required return that J&M common stock should provide.

c.Determine J&M's cost of common stock equity using the CAPM.

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