Answer the following questions:

a) Skylark Limited’s share has a beta of 1.5. The risk-free rate prevailing in the bond market is 6.75% and the market expected rate of return is 15.50%. Using the Capital Asset Pricing Model, you are required to determine the cost of equity.

b) A company’s preference share is trading at BSE at Rs. 110. The preference share is a redeemable share and the Company will redeem them after 15 years at a premium of 5% - that is, it will be redeemed after 15 years at Rs. 105; and it is 10% Preference Share – the company will pay a dividend of Rs. 10 every year. You are required to determine the cost of preference shares to the Company.

Answer rating: 100% (QA)

A Cost of equity as per Capital Asset pricing model Risk free rate beta market re... View the full answer