Be & Ba

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May 28, 2017 at 10:50 am #388548
lusan
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DSP CO has an equity beta of 0.9 and asset beta of 0.4 and risk free rate is 4% and market premium is 11%.
Calculate cost of equity?

I couldnot understand calculating ke

Ke=rf+(rm-rf)*Be. it has given Ba i tried calculating taking Be but answer mismatches.
May 28, 2017 at 10:55 am #388553
John Moffat
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Have you watched the free lectures?

It is the equity beta that determines the cost of equity.

The cost of equity = 4% + (0.9 x 11%) = 13.9%

(Rm – Rf) is the market premium, which is given as being 11%.
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