In Reality,the Cost of Equity Is Always Less Than the Cost

question 19

True/False

In reality,the cost of equity is always less than the cost of debt because firms are not obligated to pay out cash to shareholders.

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Definitions:

Risk-Free Return

The theoretical return attributed to an investment with zero risk, typically associated with government bonds.

Jensen Portfolio

A portfolio evaluated using Jensen's Alpha, which measures the excess return of the portfolio over the predicted return by the CAPM model for its level of risk.

Treynor Measures

Financial metrics used to assess the returns earned on a portfolio in excess of that which could have been earned on a risk-free investment, per each unit of market risk.

Sharpe Measure

A ratio developed by William F. Sharpe to measure risk-adjusted performance of an investment, calculating how much excess return you are receiving for the extra volatility that you endure for holding a riskier asset.