Use of the capital asset pricing model (CAPM) in measuring the cost of common stock equity differs from the constant-growth valuation model in that it directly considers the firm's risk as reflected by beta.

Question

Quizplus · Accepted Answer

The CAPM takes into consideration the firm's risk through the use of beta, while the constant-growth valuation model assumes a constant growth rate and does not directly consider the firm's risk.

Use of the Capital Asset Pricing Model (CAPM) in Measuring