Equity shares of YMC Corporation has a beta (β), of 1.4. The risk-free rate is 9%, and the market return is 21%. Determine the risk premium on its equity shares. Further determine cost of equity using the suitable model.

Risk Premium: Risk Premium = Market rate of Return (R m ) - Risk free rate of return (R f ) = 21% - 9% = 12% Cost of Equity (K e ) as per CAPM formula: K e = R f + β (R m - R f ) Where, K e = Cost of Equity R f = Risk free rate of Return β = Risk Factor R m = Market Return Hence, Cost of Equity (K e ) = 9% + (21% - 9%) 1.4 = 9% + (12%) 1.4 = 9% + 16.8% = 25.8%