The cost of equity using the CAPM approach

The current risk-free rate of return ( rRF ) is 4.23% while the market risk premium is 5.75%. The Roosevelt Company has a beta of 0.78. Using the capital asset pricing model (CAPM) approach, Roosevelts cost of equity is .

The cost of equity using the bond yield plus risk premium approach

Kennedy Company is closely held and, therefore, cannot generate reliable inputs with which to use the CAPM method for estimating a companys cost of internal equity. Kennedys bonds yield 11.52%, and the firms analysts estimate that the firms risk premium on its stock over its bonds is 3.55%. Based on the bond-yield-plus-risk-premium approach, Kennedys cost of internal equity is: 15.07% 18.08% 16.58% 18.84%