Problem:
Booher Book Stores has a beta of 0.5. The yield on a 3-month T-bill is 4% and the yield on a 10-year T-bond is 8%. The market risk premium is 4.5%, and the return on an average stock in the market last years was 8.5%.
Required:
Question: What is the estimated cost of common equity using the CAPM?
Note: Please explain comprehensively and give step by step solution.