You Are Trying to Determine the Cost of Equity for a Publicly

question 105

Multiple Choice

You are trying to determine the cost of equity for a publicly traded company.Which of the following is least useful?

• A)The 3-month Treasury bill rate
• B)The risk premium on the market
• C)The historical beta for the firm
• D)The expected rate of return on a stock of similar risk

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Definitions:

Government Budget

A financial statement presenting the government's projected revenue and spending for a specific fiscal period, outlining planned financial operations and priorities.

Allocative Efficiency

A state of the economy where resources are allocated in a way that maximizes the utility or satisfaction of consumers.

Consumer Surplus

The discrepancy between the aggregate sum consumers are prepared and can afford to spend on a product or service and the actual total amount they end up paying.

Coase Theorem

A principle that if property rights are clearly defined and transaction costs are low, private bargains will ensure that the market always reaches an efficient outcome regardless of who holds the initial property rights.