Which of the following methods of estimating the cost of common equity for a firm treats risk explicitly?
A) DCF method.
B) CAPM method.
C) Composite method.
D) Bond-yield-plus-risk-premium method.
E) Answers b and d are correct.

Question

Quizplus · Accepted Answer

The CAPM method explicitly incorporates risk by using the beta coefficient, which measures the stock's risk relative to the market. The bond-yield-plus-risk-premium method also explicitly considers risk by adding a risk premium to the bond yield.

Which of the Following Methods of Estimating the Cost of Common