Use of the Capital Asset Pricing Model (CAPM) in Measuring

question 61

True/False

Use of the capital asset pricing model (CAPM) in measuring the cost of common stock equity differs from the constant-growth valuation model in that it directly considers the firm's risk as reflected by beta.

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Definitions:

Null Hypothesis

The hypothesis that there is no significant difference between specified populations, any observed difference being due to sampling or experimental error.

Statistically Significant

A term indicating that the observed effect or relationship in data is unlikely to be due to chance, based on a predetermined significance level.

Null Hypothesis

An initial assumption which posits that no meaningful variance or impact exists, serving as the basis for beginning statistical analysis.

Significance Level

The probability of rejecting the null hypothesis in a statistical test when it is actually true, commonly denoted as alpha (α) and used as a threshold for determining statistical significance.