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The Required Return Ke Can Be Developed Using the CAPM

Question 92

Multiple Choice

The required return Ke can be developed using the CAPM model Ke = RF + B(Ke - RF) or by the cost of capital formula you learned in your financial management classes Ke = (D1/P0) +
(G) The reason we use the CAPM model in our stock valuation is because


A) Using the cost of capital formula would always give us price equals value
B) The cost of capital formula relies on the current price to determine the required return
C) The CAPM is determined independently of the current price
D) All of the above are true

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