Which One of These Statements Is Correct Concerning the CAPM

question 54

Multiple Choice

Which one of these statements is correct concerning the CAPM?

• A)The CAPM is the only available method for determining an appropriate discount rate for a proposed project.
• B)The market rate of return is most commonly based on the forecasted return on the market for the next 5-year period.
• C)CAPM is used quite frequently by firms in their capital budgeting process.
• D)The expected return on the 30-year U.S.Treasury bond is the most commonly used as the risk-free rate of return.
• E)An increase in the risk-free rate combined with a beta greater than 1.0 increases the discount rate computed using the CAPM.

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Definitions:

Cost of Acquisition

The total of all expenses incurred to acquire an asset or business, including the purchase price and related costs.

Impairment Loss

The reduction in the recoverable value of an asset or cash-generating unit below its carrying value.

Pre-Acquisition Profits

Earnings of a subsidiary before control was taken by the parent company; these are not included in the consolidated profit and loss of the parent company.