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According to the CAPM model, the cost of equity is represented by:
(Where Rm indicates market rate of return, Rf indicates risk free rate of return and βj indicates beta of stock j.)
  • a)
    Rm + (Rm - Rf) βj
  • b)
    Rf + (Rm - Rf) βj
  • c)
    βj + (Rm - Rf) Rm
  • d)
    Rm + Rf + βj
Correct answer is option 'B'. Can you explain this answer?
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According to the CAPM model, the cost of equity is represented by:(Whe...
According to the CAPM model, the cost of equity is represented by:
Rf + (Rm - Rf) βj
(Where Rm indicates market rate of return, Rf indicates risk free rate of return and βj indicates beta of stock j.)
The CAPM model indicates security with a positive alpha is one that is expected to yield an abnormal positive rate of return, based on the perceived risk of the security, and thus is under-p riced.
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According to the CAPM model, the cost of equity is represented by:(Whe...
According to the CAPM model, the cost of equity is represented by:
Rf + (Rm - Rf) βj
(Where Rm indicates market rate of return, Rf indicates risk free rate of return and βj indicates beta of stock j.)
The CAPM model indicates security with a positive alpha is one that is expected to yield an abnormal positive rate of return, based on the perceived risk of the security, and thus is under-p riced.
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According to the CAPM model, the cost of equity is represented by:(Where Rm indicates market rate of return, Rf indicates risk free rate of return and βjindicates beta of stock j.)a)Rm + (Rm - Rf) βjb)Rf + (Rm - Rf) βjc)βj + (Rm - Rf) Rmd)Rm + Rf + βjCorrect answer is option 'B'. Can you explain this answer?
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