In Comparing the Constant Growth Model and the Capital Asset

question 3

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 constant growth model ignores risk, while the CAPM 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.

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Definitions:

Delegator

An individual or entity that assigns responsibility or authority to another party to carry out specific activities or tasks.

Tenants

Tenants are individuals or entities that occupy land or property rented from a landlord under a lease agreement.

Landlords

Property owners who lease their real estate to tenants for a specified time in exchange for regular payments, typically bound by local real estate laws.

Obligors

Parties who are legally obligated to fulfill a duty or repay a debt.