Cost of equity

1. If the question had said that the market return was 8% then you would have been correct. However the question said that the market premium is 8% - the premium is the excess of the market return over the risk free rate (and so the market return is actually 11%) 2. It is the equity beta that measures the risk of the share, and therefore the equity beta that determines the shareholders required rate of return, which is the cost of equity. I do suggest that you watch my free lectures on CAPM, because I cover both these points in the lectures. The lectures are a complete free course for Paper F9 and cover everything needed to be able to pass the exam well.