Question #13 - Reading 17 Cost of Capital

Reading: Reading 17 Cost of Capital - Advanced Topics

PDF File: Reading 17 Cost of Capital - Advanced Topics.pdf

Page: 5

Status: Unattempted

Shared Context

- Helsevesen's cost of common equity using the Fama-French five-factor model is closest to: A) 10.3%. B) 12.3%. C) 8.3%.

Question

Using the Grinold-Kroner model, the estimated ERP for Yukon is closest to:

Answer Choices:

A. 2.65%

B. 3.15%

C. 7.65%

Explanation

i = 2.50% (long-term estimate after central bank's action) G = 2.50% (real GDP growth rate) ΔP/E = 1.20% DY = 0.60% ΔS = 1.35% Rf = 5.50% (LT government rate) ERP = [DY + i + G + ΔP/E + ΔS] – Rf = [0.60 + 2.50 + 2.50 + 1.20 + 1.35] – 5.50 = 2.65%.

Actions

Practice Flashcards