The WACC of Federal National Mortgage Association (FNMA) is 11.2%.
| Range | Selected | |
| Cost of equity | 18.50% - 61.40% | 39.95% |
| Tax rate | 20.50% - 20.70% | 20.60% |
| Cost of debt | 4.00% - 23.90% | 13.95% |
| WACC | 3.2% - 19.1% | 11.2% |
| Category | Low | High |
| Long-term bond rate | 3.9% | 4.4% |
| Equity market risk premium | 4.6% | 5.6% |
| Adjusted beta | 3.18 | 10.1 |
| Additional risk adjustments | 0.0% | 0.5% |
| Cost of equity | 18.50% | 61.40% |
| Tax rate | 20.50% | 20.70% |
| Debt/Equity ratio | 280.84 | 280.84 |
| Cost of debt | 4.00% | 23.90% |
| After-tax WACC | 3.2% | 19.1% |
| Selected WACC | 11.2% | |
The Cost of Equity reflects the return a company needs to deliver to shareholders to justify the risk of investing in its shares. It’s computed using the Capital Asset Pricing Model (CAPM), which blends the risk-free rate, the stock’s beta, and the market risk premium.
This method evaluates the stock’s risk compared to a safe investment and the market’s overall volatility.
Here’s how we figure out the cost of equity for FNMA:
cost_of_equity (39.95%) = risk_free_rate (4.15%) + equity_risk_premium (5.10%) * adjusted_beta (3.18) + risk_adjustments (0.25%)
We include the risk adjustments, which range from 0% to 1%, to keep our WACC conservatives, especially for companies traded in developing markets.