Problem: Calculate the beta and the cost of equity capital. The following historical data for a proxy firm is similar to the firm evaluated in the final project assignment.
Year Market Rate of Return Firm Rate of Return
20X0 25% 15%
20X1 10% 6%
20X2 15% 9%
20X3 20% 12%
Using the above data calculate the beta of the firm.
If the risk-free rate is 4%, and the market rate of return is 14%, calculate the required rate of return (cost of equity) for the stock using CAPM.