This competency assessment addresses assessing the value of investment projects. The Arbitrage Pricing Theory helps calculate required stock returns considering a number of factors. In this Assignment, you will apply Arbitrage Pricing Theory to a business scenario.

1. Complete problem: Cost of Equity-CAPM XYZ, Inc. has a beta of 0.8. The yield on a 3-month T-bill is 5%, and the yield on a 10-year T-bond is 7%. The market risk premium is 5.5%, and the return on an average stock in the market last year was 20%. What is the estimated cost of common equity using the CAPM? Show your work.