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Q2 fast, Finance question Saad is trying to estimate the long-tem cost of equity for Fauji Foods at a time when a usual investor can
Q2 fast, Finance question
Saad is trying to estimate the long-tem cost of equity for Fauji Foods at a time when a usual investor can get returns of 6.5% by investing in T-Bills and 7.5% by investing in long term bonds. Historical data suggests that equity market generally offers a premium of 12% due to inherent risk of equity market which is estimated through variance equals to 0.0625 squared percentage. What should be the cost of equity for Fauji Foods using CAPM if the covariance between tim and the equity market is 0.09375? Given the following data what would be the cost of equity for Fauji Foods if Saad wants to estimate it though Fama French 3-Factor Model as he believes Carhart's fourth factor is not relevant in case of Pakistani stock? a. Fauji Foods SMB Bela: 0.95 1. Reluis of Big Slocks: 5%, Reluids of Small Slocks: 8% c. Fauji Foods IIML Bula: 1.2 d. Reluits of Low D'M Slocks: 3.5%. Reluids of Iligh DAM Stocks: 3% c. Fauji Foods MOM Bela: 1.5 f. Reluins of Loser stocks: 5%, Reluins of Winnict Stocks: 4% Required Calculation: 1. Equity beta of Fauji Foods is 2. Cost ol'Equily using CAPM is 3. Cost of quity ising Fama-Precnh model is % where size prominem is %: HMI. premium isStep by Step Solution
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