16 Note On Cost Of Equity Capital.pdf
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Note on Cost of Equity Capital
End point: rj
=
rf + β j ( rm − rf )
rj
=
expected return on project j
rf
=
risk-free rate
rm
=
expected return on the market portfolio
βj
=
risk coefficient for project j
rm − rf =
market risk premium cov ( rj , rm )
βj
=
cov ( rj , rm )
=
σ 2m
variance of market portfolio
=
σ 2m
=
“beta”
covariance of project j with market portfolio
And, remember, rj and rm are random variables.
Note on Cost of Equity Capital
End point: rj
=
rf + β j ( rm − rf )
rj
=
expected return on project j
rf
=
risk-free rate
rm
=
expected return on the market portfolio
βj
=
risk coefficient for project j
rm − rf =
market risk premium cov ( rj , rm )
βj
=
cov ( rj , rm )
=
σ 2m
variance of market portfolio
=
σ 2m
=
“beta”
covariance of project j with market portfolio
And, remember, rj and rm are random variables.
Note on Cost of Equity Capital
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