You are reviewing a five-year monthly return regression of returns for LFC Corp, a U.S.-based retailer, against the S&P 500. 0.8 ReturnLFC = 0.45% + 1.25*ReturnS&P 500 (R2 = 35%). The U.S. treasury bond rate is currently 2.75%, the treasury bill rate today is 2.25% and the historical equity risk premium is 6%.

Estimate the long-term cost of equity in $ currency terms for this company.

a.

14.25%

b.

10.25%

c.

12.25%

d.

8.25%