The correct Treasury rate to use in calculating the cost of equity (when using the CAPM) for a company is a short-term rate.

Question

Quizplus · Accepted Answer

The correct Treasury rate to use in calculating the cost of equity (when using the CAPM) is the long-term rate. This is because the cost of equity represents the expected return for a long-term investment in the company, and using a short-term rate may not accurately reflect the long-term risk and return expectations.

The Correct Treasury Rate to Use in Calculating the Cost