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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Definitions:

Unemployment Taxes

Taxes imposed on employers by the government, intended to fund unemployment benefits for workers who have lost their jobs.

FUTA Tax Rate

The FUTA (Federal Unemployment Tax Act) Tax Rate is the percentage of taxable income employers are required to pay to fund state workforce agencies.

SUTA Tax Rate

The state unemployment tax rate, which employers must pay to fund the state's unemployment insurance program.

Unemployment Taxes

Taxes paid by employers to fund unemployment insurance programs, varying by state and based on the amount of wages paid to employees.