Respuesta :
If the risk-free rate is 2%, the cost of equity capital for a corporation is equal to 15.5 percent.
Risk-free rate = 2%
Market risk = 9%
Beta = 1.5
We know that,
Cost of Equity = Risk-Free Rate of Return + Beta Market Risk Premium
Cost of Equity = 2 + 1.59
Cost of Equity = 15.5
Hence, a corporation's cost of equity capital, if the risk-free rate is 2%, is determined by this equation: 15.5%.
What do you mean by equity capital?
Equity capital refers to the money that is invested in a business by its owners. This could be as simple as a single individual investing in a small business, or it might involve large institutional investors such as pension funds and investment banks. The main purpose of equity capital is to help fuel growth and expansion of the company, which can then lead to increased profits for all involved.
Equity holders also have an active role in decision-making processes, which allows for greater alignment of interests between management and shareholders. In addition, equity funding provides companies with access to various financial resources that they may not be able to obtain through other forms of financing.
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