In applying the CAPM to estimate the cost of equity capital,which of the following elements is not subject to dispute or controversy? A) Expected rate of return on the market,r_M. B) The stock's beta coefficient,β_i. C) Risk-free rate,r_RF. D) Market risk premium (MRP). E) All of the above are subject to dispute.

Question

Quizplus · Accepted Answer

All the elements listed (Expected rate of return on the market, the stock's beta coefficient, risk-free rate, and market risk premium) are subject to dispute or controversy in the application of the Capital Asset Pricing Model (CAPM) to estimate the cost of equity capital. This is because each of these elements involves assumptions, estimations, or selections that can vary significantly among different analysts or over time, leading to debates about the most accurate or appropriate values to use.

In Applying the CAPM to Estimate the Cost of Equity