In Applying the CAPM in Estimating the Cost of Capital

question 5

Essay

In applying the CAPM in estimating the cost of capital in an emerging market,explain the three problems in estimating an appropriate risk-free rate and the recommended solution.

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Definitions:

Income Summary

An account in which the revenues and expenses are transferred at the end of an accounting period to determine the net income or loss.

Owner's Capital

The amount of money and other assets invested in a business by its owner or owners.

Owner's Drawings

The withdrawal of business assets by the owner for personal use.

Closing Entries

Journal entries made at the end of an accounting period to transfer temporary account balances to permanent accounts in preparation for the new accounting period.