When Estimating the Cost of Equity by Use of the Bond-Yield-Plus-Risk-Premium

question 61

True/False

When estimating the cost of equity by use of the bond-yield-plus-risk-premium method, we can generally get a good idea of the interest rate on new long-term debt, but we cannot be sure that the risk premium we add is appropriate.This problem leaves us unsure of the true value of r_s.

---

Definitions:

Cognitive Dissonance

The mental discomfort experienced by a person who holds two or more contradictory beliefs, ideas, or values at the same time.

Depression

This condition, defined by a consistently low emotional state or a lack of enthusiasm for activities, notably hinders regular daily activities.

Downward Social Comparison

A defensive tendency to compare oneself with someone whose troubles are more serious than one’s own.

Self-verification

The process through which individuals seek to confirm their self-concept by encouraging feedback that aligns with their existing beliefs and perceptions about themselves.