Python Exercises for Corporate Finance and Risk Management

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Question: 95

A company is 40% financed by risk-free debt. The interest rate (rf) is 10%, the expected market risk premium (rm - rf) is 8%, and the beta of the company’s common stock is (beta) .5. What is value of the cost of equity capital (re) as per CAPM?


To calculate the cost of equity capital as per CAPM, we already have interest rate, risk premium as wall as market beta.

  • Define a function with the name "cost_of_equity_capital", which will take three arguments, interest rate, risk premium and beta.
  • The signature of the function should be like:

    def cost_of_equity_capital(interest_rate,risk_premium,beta):

  • Use the formula, Cost of equity capital (as per CAPM) = interest rate + beta*risk premium

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