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

Question

Quizplus · Accepted Answer

The expected excess market return is equal to the difference between the return on the market and the risk-free rate according to the CAPM formula:

Cost of equity capital = Risk-free rate + Beta x (Expected market return - Risk-free rate)

The expected excess market return is represented by (Expected market return - Risk-free rate), which is the same as option B.

When the CAPM Is Used to Estimate the Cost of Equity