The yield on a three-month t-bill is 2.7%, and the yield on a 10-year t-bond is 3.8%. The market risk premium is 6.1%. D'Amico Co. has a beta of 1.56. Using the Capital Asset Pricing Model (CAPM) approach, D'Amico's cost of equity is

a. 16%

b. 14%

c. 14.6%

d. 13.3%

Kuhn Co. is closely held and, consequently, cannot generate reliable inputs for the CAPM approach. Kuhn's bonds yield 11.5%, and the firm's analysts estimate that the firm's risk premium on its stock over its bonds is 3.5%. Using the over-own-bond-yield judgemental risk premium approach, find the firm's cost of equity:

a. 16.5%

b. 18.8%

c. 15%

d. 18%

Please show how you got the answer. Thanks!