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

Question

Quizplus · Accepted Answer

The CAPM formula is Ke = Rf + β(Rm - Rf), where Ke is the cost of equity capital, Rf is the risk-free rate, β is the stock's beta, and Rm is the expected market return. The expected excess market return is the difference between the return on the market and the risk-free rate, which is represented by Rm - Rf, thus the correct answer is B.

If the CAPM Is Used to Estimate the Cost of Equity