Using the capital asset pricing model (CAPM) approach, the cost of retained earnings for the company is closest to
An analyst gathered the following information about a company and the market:
Current market price per share of common stock $28.00
Most recent dividend per share paid on common stock (D0) $2.00
Expected dividend payout rate 40%
Expected return on equity (ROE) 15%
Beta for the common stock 1.3
Expected rate of return on the market portfolio 13%
Risk-free rate of return 4%
A. 13.6%.
B. 15.7%.
C. 16.1%.
Answer: B. 15.7%.
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