Freightway Trucking Inc uses the CAPM to help estimate their cost of e

Freightway Trucking Inc uses the CAPM to help estimate their cost of equity.

Given the following information, what is the firm’s estimated cost of equity? The risk-free return in the market is currently 3%, the market risk premium is 8%, the expected return on the market portfolio if 11% and the firm has a beta of 1.50
A) 7.50%
B) 15.00%
C) 10.50%
D) 19.50%

ANSWER

B
Explanation: B) r = rf + beta (rm – rf) = 3% + 1.50 * (8%) = 15.00%.