When Estimating the Cost of Equity by Use of the CAPM

question 41

True/False

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 r_RF, (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, RP_M.These problems leave us unsure of the true value of r_s.

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Definitions:

Transpersonal

Pertaining to or involving experiences and states of consciousness beyond the limits of personal identity, often associated with spirituality and psychology.

Nietzsche

A philosopher who challenged the foundations of Christianity and traditional morality, famed for his assertion "God is dead" and explorations of the Ubermensch (superman) concept.

Apollonian

Nietzsche’s term for the rational principle in art; form.

Objective Worth

The inherent value of something independent of personal opinions or desires.