If the CAPM is used to estimate the cost of equity capital,the expected excess market return is equal to the:

Name: If the CAPM is used to estimate the cost of equity capital,the expected excess market return is equal to the:
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Question

Quizplus · Accepted Answer

The CAPM formula is expressed as:

Expected return on stock = Risk-free rate + Beta*(Expected market return - Risk-free rate)

Here, the expected excess market return is the difference between the expected market return and the risk-free rate. Therefore, the correct answer is B.

If the CAPM Is Used to Estimate the Cost of Equity