Calculate JimBo Incs cost of equity using the capital asset

Calculate JimBo Inc.’s cost of equity using the capital asset pricing model approach. The company’s beta is 1.3, the risk-free rate is 3 percent, and the average return on the market is 12 percent. Also, please show how to entering numbers in financial calculator HP bII+

Solution

as per CAPM:

cost of equity = risk free rate + beta *( market return - risk free rate)

=> 3% + 1.3*(12% - 3%)

=>14.7%.

jimbo inc\'s cost of equity = 14.7%.

note: the above problem\'s numbers can be entered directly as below in the calculator:

3 + 1.3*(12-3)