Answer:
11.50%
Explanation:
The computation of the cost of equity is shown below:
In this question, we apply the Capital Asset Pricing Model (CAPM) formula which is shown below
Expected rate of return = Risk-free rate of return + Beta × (Market rate of return - Risk-free rate of return)
= 4% + 1.5 × 5%
= 4% + 7.5%
= 11.50%
The Market rate of return - Risk-free rate of return) is also known as the market risk premium and the same is applied.
