If the CAPM Is Used to Estimate the Cost of Equity

question 63

Multiple Choice

If the CAPM is used to estimate the cost of equity capital,the expected excess market return is equal to the:

• A)return on the stock minus the risk-free rate.
• B)return on the market minus the risk-free rate.
• C)beta times the market risk premium.
• D)beta times the risk-free rate.
• E)market rate of return.

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Definitions:

Acid-fast Bacilli

A group of bacteria, including Mycobacterium tuberculosis, that resist decolorization by acids after being stained, used in diagnosing tuberculosis and other infections.

Vital Capacity

The maximum amount of air a person can expel from the lungs after a maximum inhalation.

Thoracoplasty

A surgical procedure involving the removal of ribs to collapse part of the lungs for the treatment of tuberculosis or other lung diseases.

Thyroid Cartilage

The largest cartilage of the larynx, commonly known as the Adam's apple, playing a key role in protecting the vocal cords and the entrance to the trachea.