Cost of Equity

For this exercise, you are asked to calculate the CAPM cost of equity as of the end of 2016. The subject firm has a beta of 1.46, which is stored in beta. You will have to calculate the risk-free rate and equity risk premium based on the techniques you learned in the earlier chapters. The raw data for 10-Year US Treasuries from the Federal Reserve Electronic Database are stored in treas and the data from Professor Damodaran's website for the returns of the S&P 500 Index and 10-Year Treasury bond are stored in damodaran.

Subset the US Treasury data to December 30, 2016.
Keep the 2nd column (yield).
Convert the risk-free rate from percentage terms to decimal terms.
Calculate the annual difference between the S&P returns and US Treasury Bond returns.
Calculate the average of the difference in returns.
Calculate the CAPM Cost of Equity.

Take Hint (-30 XP)

Exercise

Cost of Equity

Instructions