1. In calculating the cost of equity, i do not understand why the risk free rate was not subtracted from the market risk premium
2. The value of BBB rating was not given in the question, how was it derived in calculating kd?
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Coeden Co
6y ago#11. As I explain in my free lectures, the market premium is the market return less the risk free rate. We therefore do not subtract the risk free rate again.
2. The question says that the credit spread on BBB rated bonds is 90 basis points (i.e. 0.90%)
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