Briefly Explain How a Firm's Cost of Equity Is Estimated

question 69

Essay

Briefly explain how a firm's cost of equity is estimated using the capital asset pricing model (CAPM).

---

Definitions:

Cognitive Dissonance

A psychological phenomenon where an individual experiences discomfort due to holding contradictory beliefs, ideas, or values at the same time.

Attribution

The process of explaining one's own or others' behaviors and events by attributing causes to them.

Fundamental Attribution Error

The tendency for observers, when analyzing others’ behavior, to underestimate the impact of the situation and to overestimate the impact of personal disposition.

Fundamental Attribution Error

A cognitive bias where individuals tend to attribute others' actions to their character or personality, underestimating external factors.