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Assume that the risk free interest rate is 2% and that the equity premium is currently at 1%. Consider the information on the market B associated with each of the banks described above in the

Assume that the risk free interest rate is 2% and that the equity premium is currently at 1%. Consider the information on the market B associated with each of the banks described above in the following table: A B1.02 Bank B с DE 1.08 1.10 1.04 1.13 Recall the formula for the cost of capital: R = R$ +ß (RM – R') a) Using the information provided, calculate the cost of capital for each of the five banks. [7 points] b) Which banks would represent a good investment? Briefly explain.

Apr 12 2021 View more View Less

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