The attached photo is a study tool. Why are they not (5%-4%) subtracting the growth rate from the market return?Thanks WHAT YOU NEED TO KNOWThe stock of Canadian Ski Wear is currently trading at $45 a share and the beta of the company is estimated to be 1.3. Thecompany is expected to pay a dividend of $1.50 a share next year, and this dividend is expected to grow at a rate of 4%per year. The rate on the 10-year U.S. Treasury bond is 4% and you estimate the market risk premium to be 5%. Using theCAPM, the company's cost of common stock is 10.5%. To compute the cost using CAPM you use the following model andinputs:Kcs = rf + B(rm -rf)Kes = cost of common stockIf risk-free rateB = BetaIm = expected return on the marketSo, Cost of common stock = 4% + 1.3(5%) = 10.5%

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Description: The attached photo is a study tool. Why are they not (5%-4%) subtracting the growth rate from the market return?Thanks WHAT YOU NEED TO KNOWThe stock of Canadian Ski Wear is currently trading at $45 a share and the beta of the company is estimated to

Capital Asset Pricing Model:-(CAPM) The capital asset pricing model is a financial model used to…

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The attached photo is a study tool. Why are they not (5%-4%) subtracting the growth rate from the market return?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter7: Common Stock: Characteristics, Valuation, And Issuance

Section: Chapter Questions

Problem 12P

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