When Estimating the Cost of Equity by Use of the CAPM

question 17

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 rRF, (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, RPM. These problems leave us unsure of the true value of rs.

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Definitions:

Mediator

A neutral third party who assists disputing parties in resolving conflicts through communication and negotiation techniques, without providing legal judgment.

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