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:

Democracy

A form of government in which power is vested in the people, who rule either directly or through freely elected representatives.

Great Compromise

The agreement made during the Constitutional Convention of 1787 that created a two-house legislature, balancing the representation of small and large states in Congress.

Federalist Papers

A series of 85 essays written by Alexander Hamilton, James Madison, and John Jay promoting the ratification of the United States Constitution.

Ratification

The formal approval process of a treaty, constitutional amendment, or legislative act to make it officially valid.