Calculate the Cost of Equity Capital Using CAPM If the Risk-Free

question 40

Multiple Choice

Calculate the cost of equity capital using CAPM if the risk-free rate of interest is 5 per cent,the return on the market portfolio is 12 per cent,beta is 0.8 and the franking premium is 2 per cent.

• A)10.6%
• B)14%
• C)12.2%
• D)12%

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Definitions:

Multiple Means

Refers to having various methods or ways to achieve a particular end.

Error Management Theory

A theoretical framework suggesting that humans have evolved biases in judgment and decision-making processes to minimize costly errors.

Omission Bias

Omission bias is the tendency to favor an act of omission (not doing something) over one of commission (doing something), often due to the fear of making a wrong choice.

Status Quo Bias

A cognitive bias where individuals prefer retaining current conditions to change or new alternatives, due to the perceived comfort or safety in familiarity.