Considering the available information in the question, the cost of equity for this firm is "0.1566."
The cost of equity for the firm is expressed below:
RE = Rf + β × ( E (RM) − Rf );
Here, the RE is the
Rf => risk-free => 3.2 percent;
β => beta => 1.21;
E (RM) => market rate of return => 13.5 percent;
Thus, we have the following formula to compute:
RE = 0.032 + 1.21 × (0.135 − 0.032)
RE = 0.1566
Cost of equity is a term that is used I'm describing the rate of return firms need for business investment.
In another way, the Cost of equity depicts the rate of return that an individual needs for an equity investment.
Hence, in this case, it is concluded that the correct answer is "0.1566."
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