Question: EXAMPLEEXAMPLE If the appropriate equity premium lies between 3 % and 5 % , what is the cost of equity for Allied, whose bonds yield

EXAMPLEEXAMPLE
If the appropriate equity premium lies between 3% and 5%, what is the cost of equity for
Allied, whose bonds yield 8%?
Allied r5
In regards to Allied, the risk-free rate equals 4.5%, the market risk premium is 5%, and the
firm's beta is 1.50. What is the company's cost of equity from retained earnings?
r5=
We could use an Excel Data Table to calculate r5 at different betas:
EXAMPLEEXAMPLE If the appropriate equity premium lies between 3% and 5%,

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