FIN4801
Assignment 2 2026
Unique number:
Due Date: June 2026
QUESTION 1
The market risk premium in terms of CAPM is the extra return that investors expect to earn
from the market above the risk-free rate. It is the reward for taking market risk instead of
investing in a risk-free asset.
The CAPM formula is:
Cost of equity = Risk-free rate + Beta × Market risk premium
Or:
Ke = Rf + β × (Rm − Rf)
In the formula, the market risk premium is (Rm − Rf)
Terms of use
By making use of this document you agree to:
Use this document as a guide for learning, comparison and reference purpose,
Terms of use
Not to duplicate, reproduce and/or misrepresent the contents of this document as your own work,
By making use of this document you agree to:
Use this document
Fully accept the consequences
solely as a guide forshould you plagiarise
learning, reference,orand
misuse this document.
comparison purposes,
Ensure originality of your own work, and fully accept the consequences should you plagiarise or misuse this document.
Comply with all relevant standards, guidelines, regulations, and legislation governing academic and written work.
Disclaimer
Great care has been taken in the preparation of this document; however, the contents are provided "as is" without any express or
implied representations or warranties. The author accepts no responsibility or liability for any actions taken based on the
information contained within this document. This document is intended solely for comparison, research, and reference purposes.
Reproduction, resale, or transmission of any part of this document, in any form or by any means, is strictly prohibited.
, +27 81 278 3372
QUESTION 1
The market risk premium in terms of CAPM is the extra return that investors expect
to earn from the market above the risk-free rate. It is the reward for taking market
risk instead of investing in a risk-free asset.
The CAPM formula is:
Cost of equity = Risk-free rate + Beta × Market risk premium
Or:
Ke = Rf + β × (Rm − Rf)
In the formula, the market risk premium is (Rm − Rf)
QUESTION 2
What is the cost of equity for the company in the following scenario:
“Bricks Ltd., a brick manufactory, is a zero-leverage firm and is solely financed by
equity. It is traded on the JSE and has a beta of 1.5 associated with its shares. The
risk-free rate is 5%, the market risk premium is 6%. What is the cost associated with
the equity of Bricks Ltd.? Use CAPM.”
Indicate the correct answer option in your answer, only write down the most correct
option in your answers.
a. 12%
b. 14%
c. 16%
d. 17%
Working:
Cost of equity
Disclaimer
Great care has been taken in the preparation of this document; however, the contents are provided "as is"
without any express or implied representations or warranties. The author accepts no responsibility or
liability for any actions taken based on the information contained within this document. This document is
intended solely for comparison, research, and reference purposes. Reproduction, resale, or transmission
of any part of this document, in any form or by any means, is strictly prohibited.
Assignment 2 2026
Unique number:
Due Date: June 2026
QUESTION 1
The market risk premium in terms of CAPM is the extra return that investors expect to earn
from the market above the risk-free rate. It is the reward for taking market risk instead of
investing in a risk-free asset.
The CAPM formula is:
Cost of equity = Risk-free rate + Beta × Market risk premium
Or:
Ke = Rf + β × (Rm − Rf)
In the formula, the market risk premium is (Rm − Rf)
Terms of use
By making use of this document you agree to:
Use this document as a guide for learning, comparison and reference purpose,
Terms of use
Not to duplicate, reproduce and/or misrepresent the contents of this document as your own work,
By making use of this document you agree to:
Use this document
Fully accept the consequences
solely as a guide forshould you plagiarise
learning, reference,orand
misuse this document.
comparison purposes,
Ensure originality of your own work, and fully accept the consequences should you plagiarise or misuse this document.
Comply with all relevant standards, guidelines, regulations, and legislation governing academic and written work.
Disclaimer
Great care has been taken in the preparation of this document; however, the contents are provided "as is" without any express or
implied representations or warranties. The author accepts no responsibility or liability for any actions taken based on the
information contained within this document. This document is intended solely for comparison, research, and reference purposes.
Reproduction, resale, or transmission of any part of this document, in any form or by any means, is strictly prohibited.
, +27 81 278 3372
QUESTION 1
The market risk premium in terms of CAPM is the extra return that investors expect
to earn from the market above the risk-free rate. It is the reward for taking market
risk instead of investing in a risk-free asset.
The CAPM formula is:
Cost of equity = Risk-free rate + Beta × Market risk premium
Or:
Ke = Rf + β × (Rm − Rf)
In the formula, the market risk premium is (Rm − Rf)
QUESTION 2
What is the cost of equity for the company in the following scenario:
“Bricks Ltd., a brick manufactory, is a zero-leverage firm and is solely financed by
equity. It is traded on the JSE and has a beta of 1.5 associated with its shares. The
risk-free rate is 5%, the market risk premium is 6%. What is the cost associated with
the equity of Bricks Ltd.? Use CAPM.”
Indicate the correct answer option in your answer, only write down the most correct
option in your answers.
a. 12%
b. 14%
c. 16%
d. 17%
Working:
Cost of equity
Disclaimer
Great care has been taken in the preparation of this document; however, the contents are provided "as is"
without any express or implied representations or warranties. The author accepts no responsibility or
liability for any actions taken based on the information contained within this document. This document is
intended solely for comparison, research, and reference purposes. Reproduction, resale, or transmission
of any part of this document, in any form or by any means, is strictly prohibited.
