Which of the following is most accurate regarding the advantages and disadvantag

ID: 2653736 • Letter: W

Question

Which of the following is most accurate regarding the advantages and disadvantages of the methods used to compute a company’s cost of equity?

Select one:

a. II. A disadvantage of the Security Market Line (SML) is that it does not explicitly consider risk

b. I, II, & III are correct

c. I and III are correct

d. I. A disadvantage of the Dividend Growth Model is that it is extremely sensitive to the estimated growth rate

e. III.An advantage of the SML is we are using the past to predict the future, which is not always reliable

d. I. A disadvantage of the Dividend Growth Model is that it is extremely sensitive to the estimated growth rate

Since

SML Explicitly adjusts for systematic risk. Thus option 1 is incorrect.

Since we are using past to predict future , being not reliable is disadvantage of SML.This is not an advantage.

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