The difficulty in using the CAPM for determining the cost of equity lies in:

Question

Quizplus · Accepted Answer

The CAPM model requires the estimation of the firm's beta, the risk-free rate, and the expected return on the market, all of which involve uncertainty and subjectivity. As a result, the accuracy and reliability of the cost of equity calculated using the CAPM model are susceptible to errors and biases stemming from these issues. Therefore, all of the choices are correct, making it challenging to use the CAPM for determining the cost of equity.

The Difficulty in Using the CAPM for Determining the Cost