Calculation of Cost of Capital for a Project-Multiple Choice Question

Question

Suppose that in the coming year, you expect Chevron Corporation stock to have a volatility of 42% and a beta of 0.9, and BP's stock to have a volatility of 24% and a beta of 1.1. The risk free interest rate is 4% and the market's expected return is 12%.

The cost of capital for a project with the same beta as Chevron Corporation’s stock is closest to:

A) 11.6%

B) 11.2%

C) 12.8%

D) 7.6%