In Applying the Capital Asset Pricing Model (CAPM) to Estimate

question 17

Multiple Choice

In applying the Capital Asset Pricing Model (CAPM) to estimate a firm's cost of equity capital, the beta coefficient (β) in the model represents

• A) The expected dividend per share divided by the current market price per share of common stock.
• B) The cost of retained earnings.
• C) The yield-to-maturity on long-term bonds payable.
• D) A measure of the sensitivity of the firm's stock return to fluctuations in the returns of the overall market.
• E) The "market risk premium" for that firm's stock.

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