If beta is $1\mathrm{.}05,$ what is the estimate for the cost of equity? Provide the following inputs that you used and why. Note that there are several estimates given, and you have to think about the best estimates to use. There is no absolutely $$correct$$ answers. However, some estimates are better than others, and some may not be appropriate.

The case does not give you the RF $($Risk$-$Free$)$ and RPM $($Risk Premium on the Market$)$ at the end of $2002.$ Also, you are not supposed to get this from outside the case. Therefore, use the information given below to decide on the RF rate RPM for the CAPM. The data were based on December $31,2002.$

T$-$Bill Yield $0\mathrm{.}85\%($annual$)$

T$-$Bond Yield $(30$ Yr$)4\mathrm{.}56\%($annual$)$

Equity Market Risk Premium

Risk premium over T$-$Bill $8\mathrm{.}40\%($annual$)$

Risk premium over T$-$Bond $6\mathrm{.}40\%($annual$)$