When Comparing the CAPM and Gordon's Constant Growth Model to Calculate

question 28

Multiple Choice

When comparing the CAPM and Gordon's constant growth model to calculate the cost of equity,we find:

• A)CAPM directly considers risk through beta while the constant growth model uses the market price of shares to reflect the risk preference of investors
• B)CAPM indirectly considers risk as reflected in the market return while the constant growth model uses expected dividends to reflect risk
• C)CAPM directly considers risk through beta while the constant growth model uses dividend expectations to allow for risk
• D)CAPM directly considers risk through beta while the constant growth model ignores risk

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