The Rhaegel Corporation’s common stock has a beta of 1.9. If the risk-free rate is 5 percent and the expected return on the market is 12 percent, what is the company’s cost of equity capital?

The Rhaegel Corporation’s common stock has a beta of 1.9. If the risk-free rate is 5 percent and the expected return on the market is 12 percent, what is the company’s cost of equity capital? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Explanation:

Here we have information to calculate the cost of equity using the CAPM. The cost of equity is:

RE = .05 + 1.9(.12 – .05)

RE = .1830, or 18.30%