Answer:
The cost of equity will decrease by 6%
Explanation:
CAMP under first asumptions
[tex]Ke= r_f + \beta (r_m-r_f)[/tex]
risk free 0.04
market rate 0.09
premium market market rate - risk free 0.05
beta(non diversifiable risk) 3
[tex]Ke= 0.04 + 3 (0.05)[/tex]
Ke 0.19000
Second Assumptions
[tex]Ke= r_f + \beta (r_m-r_f)[/tex]
risk free 0.04
market rate
premium market market rate - risk free 0.03
beta(non diversifiable risk) 3
[tex]Ke= 0.04 + 3 (0.03)[/tex]
Ke 0.13000
CAMPa 19% CAMPb 13% difference 6%
a simply way to calculate, which is demostrate for the prevous calculations:
β x rm 3 x -2% = -6%
