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Background: Three companies need capital. Company A has a beta of 1.40. Company B has a beta of 0.85. Company C has a beta of
Background:
Three companies need capital.
Company A has a beta of 1.40.
Company B has a beta of 0.85.
Company C has a beta of 0.60.
The yield on 20-year Treasury bonds is currently 2.5% and the return on the market is 16%.
REQUIRED:
A) Calculate the cost of equity for each company.
B) Based on each company's beta, describe the company's relationship with the market, assuming, for this question only, that the market grew at 7% this year.
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