Hi Sir
i noticed in the BPP revision kit when calculating the cost of equity using CAPM they do not deduct the risk free rate from the market premium. For e.g. Q 57 to establish the cost of equity they simply do 3.8 1.2 x 7 = 12.2. Whereas I calculate by deducting 3.8 from 7 giving me a completely different cost of equity. Please advise.
Thanks
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CAPM
4y ago#1It depends whether the question gives the market return or the market risk premium.
The formula has the market return less the risk free rate, and this difference is also known as the market risk premium.
I do explain this in my free lectures on CAPM.
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