The following information is available for a firm in a developing country:
Risk-free rate
2.0%
Firm’s equity beta
1.5
Equity risk premium in a developed country
3.0%
Developing country risk premium
4.0%
Sovereign yield spread
2.5%
The fir
m’s cost of equity using the CAPM approach is closest to:
A 10.5%.
B 12.5%.
C 10.3%.
B is correct. Cost of equity = Risk-free rate + Equity beta × (Equity risk premium + Country risk premium) = 0.02 + 1.5 × (0.03 + 0.04) = 12.5%.
为什么直接用了发达国家4%作为premium计算？Sovereign yield spread是多余的吗？
