3) The capital asset pricing model (CAPM) shown below is often used as a relationship...
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3) The capital asset pricing model (CAPM) shown below is often used as a relationship to estimate a firm's equity discount rate (also known as the firm's cost of equity capital). Imagine that you own a stock that trades in a market where the expected rate of return on the market index is 12%, the risk-free rate is 2%, and the stock's beta is 1.5; please answer the questions below: R. = R, +B.(E(Rm) R,) a) What would the firm's cost of equity capital (equity discount rate) be? b) What would the firm's cost of equity capital be if the beta were 0.8? c) What would the firm's cost of equity capital be if the beta were 0
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