To estimate the cost of common stock using the Capital Asset Pricing Model, we have:

Rs = rRF + (RPm)bi

Where:

rRF = risk-free rate RPm = current market risk premium, which is the required market return minus the risk- free rate. Bi = The stocks beta coefficient, which measures the stocks relative risk. The subscript I signifies Stock is beta.

Assume that rRF = 10%, RPm = 5.5%, and company XYZs bi = 1.2%. Calculate company XYZs cost of equity.

Please show your work.