Assume that the risk-free rate of interest is 3% and you estimate the market's expected return to be 9%. Which firm has the highest cost of equity capital?

Assume that the risk-free rate of interest is 3% and you estimate the market's expected return to be 9%. Which firm has the highest cost of equity capital?

Naim 13:57

Assume that the risk-free rate of interest is 3% and you estimate the market's expected return to be 9%.
Which firm has the highest cost of equity capital?



A) Eenie
B) Meenie
C) Miney
D) Moe


Answer: D) Cost of capital is measured using the CAPM and is a linear function of beta. Therefore, the firm with the highest beta (Moe) has the highest cost of equity capital.


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