Hey, I am a bit confused regarding how to calculate k, when provided a company’s beta, the risk-free rate, and market premium. Here is an example question:
'Pam Robers, CFA, is performing a valuation analysis on the common stock of Allstare Inc. The stock’s beta is 1.1, the risk-free rate is 5%, and the market risk premium is expected to be 8%. Allstare’s ROE is expected to be constant at 18%, and its dividend payout ratio has been fairly constant over time at 40%. The forward-earnings multiplier that Robers should use to estimate the current value of the shares is closest to:;
I was under the impression that in order to calculate k, you have to do Rf + B(Rm-Rf) however I have seen in many circumstances, as well as in this answer that they only do Rf+B(Rm). Is someone able to clarify why this is the case?