The bond-yield-plus-risk-premium approach provides a practical but highly subjective solution to the estimation of the cost of equity. The approach is based upon adding up a risk premium over the firm’s bond yield. Thus, the cost of equity is calculated straightforward by the following simple computation:

k= 0.0845 + 0.0315= 0.1160

According to the bond-yield-plus-risk-premium approach, XLM’s expected cost of equity is 11.60%. The correct answer is C.