You are trying to determine the cost of equity for a publicly traded company.Which of the following is least useful?

Question

Quizplus · Accepted Answer

The historical beta for the firm may not reflect the current market conditions or future expectations. Therefore, it may not be an accurate measure of the cost of equity. Instead, options A, B, and D provide more relevant information. Option A (the 3-month Treasury bill rate) is a risk-free rate that can be used to measure the cost of equity. Option B (the risk premium on the market) is the additional return an investor would require for investing in the stock market compared to a risk-free investment, and is a critical input when calculating the cost of equity. Finally, option D (the expected rate of return on a stock of similar risk) provides insight into the expected returns for a company with similar risk characteristics, which is useful when determining the cost of equity for the target company.

You Are Trying to Determine the Cost of Equity for a Publicly