20. Which of the following statements is true of the capital asset pricing model
ID: 2594047 • Letter: 2
Question
20. Which of the following statements is true of the capital asset pricing model (CAPM)? a. The capital asset pricing model (CAPM) approach to estimating a firm's cost of retained earnings gives a better estimate than the discounted cash flow (DCF) approach. b. The capital asset pricing model (CAPM) approach is typically used to estimate a firm's flotation cost adjustment factor, and this factor is added to the discounted cash c. The beta coefficient used in the capital asset pricing model (CAPM) approach is the d. The capital asset pricing model (CAPM) approach and the discounted cash flow e. The capital asset pricing model (CAPM) approach assumes investors are wel flow (DCF) cost estimate. same as the growth rate used in the discounted cash flow (DCF) method. (DCF) approach always result in exctly the same estimate forr. diversified and the discounted cash flow (DCF) approach assumes constant growth rate.Explanation / Answer
Solution:-
e. The capital asset pricing model (CAPM) approach assumes investors are well diversified and the discounted cash flow (DCF) approach assumes constant growth rate.
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