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Exercise

Calculate the Cost of Equity

The most common approach to estimate the cost of equity is to use the Capital Asset Pricing Model (CAPM). The CAPM requires as inputs the subject firm's beta, risk-free rate, and equity risk premium. From the prior exercises, you calculated the subject firm's beta (relevered_beta), risk-free rate from FRED (rf), and equity risk premium (erp). Now, combine all these inputs to calculate the CAPM Cost of Equity.

Instructions

100 XP
  • Calculate the CAPM Cost of Equity.