If 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 in the context of the Capital Asset Pricing Model (CAPM) is defined as the difference between the return on the market and the risk-free rate. This is because the CAPM formula calculates the expected return on an investment as the risk-free rate plus the product of the investment's beta and the market risk premium (the difference between the market return and the risk-free rate).

If the CAPM Is Used to Estimate the Cost of Equity