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Diddy Corp. Stock has a beta of 1.2, the current risk-free rate is 6 percent, and the expected return on the market is 14.50 percent. What is Diddy's cost of equity?

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Answer: 16.2%

Step-by-step explanation:

You can find the cost of equity using the Capital Asset Pricing Model (CAPM).

Cost of equity = Risk free rate + Beta * (Expected return on market - Risk free rate)

= 6% + 1.2 * (14.50 - 6%)

= 6% + 10.2%

= 16.2%

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