When estimating the cost of equity by use of the CAPM, three potential problems are (1)whether to use long-term or short-term rates for rRF, (2)whether or not the historical beta is the beta that investors use when evaluating the stock, and (3)how to measure the market risk premium, RPM.These problems leave us unsure of the true value of rs.

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Quizplus · Accepted Answer

Unfortunately, this is true.

When Estimating the Cost of Equity by Use of the CAPM