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Suppose you estimate that Company D s stock has a volatility of 2 0 % and a beta of 1 . 2 5 . Similarly
Suppose you estimate that Company Ds stock has a volatility
of and a beta of Similarly Stock C has a volatility of
and a beta of
Which stock carries more risk?
Which has more market risk?
If the riskfree interest rate is and you estimate the markets
expected return to be calculate the equity cost of capital for
Company D and Company C
Which company has the highest cost of equity capital?
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