In Comparing the Constant-Growth Model and the Capital Asset Pricing

question 49

Multiple Choice

In comparing the constant-growth model and the capital asset pricing model (CAPM) to calculate the cost of common stock equity, ________.

• A) the CAPM ignores risk, while the constant-growth model directly considers risk as reflected in the beta
• B) the CAPM directly considers risk as reflected in the beta, while the constant-growth model uses the market price as a reflection of the expected risk-return preference of investors
• C) the CAPM directly considers risk as reflected in the beta, while the constant growth model uses dividend expectations as a reflection of risk
• D) the CAPM indirectly considers risk as reflected in the market return, while the constant growth model uses dividend expectations as a reflection of risk