Which of the Following Gives the Calculation of the Capitalization

question 9

Multiple Choice

Which of the following gives the calculation of the capitalization rate?

• A) the equity risk premium plus the specific company risk premium
• B) the required rate of return minus the risk free rate
• C) the dividend payout rate plus the long-term sustainable growth rate
• D) the discount rate minus the expected long-term sustainable growth rate

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Definitions:

Present Value

The value today of a future sum of money or sequence of cash inflows, factoring in a given return rate.

Compounded Annually

This describes the process where interest is added to the principal balance of an investment or loan once per year, resulting in interest earning interest in subsequent years.

Retirement Account

An investment account specifically designed for saving towards retirement, offering tax advantages.

Compounded Annually

Interest calculation method where the interest earned in one year is added to the principal, and in the following year, interest is earned on the new total.