Which of the following is a situation in which you would want to use the CAPM approach for estimating the component cost of equity?
A) When you are able to estimate the market risk premium with certainty
B) When you are able to estimate the risk-free rate with certainty
C) When you are able to estimate the firm's beta with certainty
D) When the firm pays a constant dividend

Question

Quizplus · Accepted Answer

The CAPM approach requires the estimation of the firm's beta, which measures the systematic risk of the stock relative to the overall market. This is a key input in the calculation of the cost of equity using the CAPM formula. While the other choices may be helpful in estimating other components of the formula, they do not specifically address the need for a beta estimate.

Which of the Following Is a Situation in Which You