One Criticism in Using the CAPM to Calculate the Cost

question 45

Short Answer

One criticism in using the CAPM to calculate the cost of equity capital is that ______________________________ and the __________________________________________________ are quite sensitive to the time period and methodology used in their computation.

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Definitions:

Compounded Quarterly

A method where interest is added to the principal every three months which allows interest to be earned on the previously accumulated interest.

Scholarships

Financial support awarded to students based on academic or other achievements to help fund their education.

Trust Fund

A fund comprised of a variety of assets intended to provide benefits to an individual or organization, managed by a trustee.

Compounded Annually

Refers to the process of calculating interest on an investment or loan once per year, adding it to the principal amount.