The cost of capital of investment i is equal to the expected return of the best available portfolio in the market with the same sensitivity to
A) systematic risk.
B) firm-specific risk.
C) unique risk.
D) independent risk.

Question

Quizplus · Accepted Answer

The cost of capital of an investment is determined by its sensitivity to systematic risk, which is also known as market risk. Therefore, the expected return of the best available portfolio in the market with the same sensitivity to systematic risk is the appropriate benchmark for calculating the cost of capital. The other options (B, C, and D) are not relevant to the calculation of the cost of capital.

The Cost of Capital of Investment I Is Equal to the Expected