f. What is the cost of equity based on the over-own-bond-yield-plus-judgmental-risk-premium method? THE BOND-YIELD-PLUS-JUDGMENTAL-RISK-PREMIUM APPROACH This approach consists of adding a judgmental risk premium to the yield on the firm's own long-term debt. It is logical that a firm with risky, low-rated debt would also have risky, high-cost equity. Historically, we have observed that the risk premium for equity is in the range of 3 to 5 percentage points. This method provides a ballpark estimate, and it is generally used as a check on the CAPM and DCF estimates. This method is used primarily in utility rate case hearings. Over-own-bond-judgmental risk premium = 3.2% Bond yield = 10.0% rs = Judgmental premium + Own bond yield rs = 3.2% + 10.0% rs = 13.2%