Compare and contrast the build-up method and CAPM in determining the cost of equity.
What will be an ideal response?
Similarities: The starting point for both is the premium for an appropriate maturity government security. Also, both are based on the assumption that taking systemic risk is rewarded by a risk premium that is added to the RFR, the ERP.
Differences: Each method differs on how it looks at unique risk. Under the build-up method, an asset’s unique risk is determined by the industry risk premium, and the company size premium. Under CAPM, an asset’s unique risk is determined by a coefficient that expresses its proportionality to the risk premium of a fully diversified market portfolio.
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A. Convention on the Recognition and Enforcement of Foreign Laws. B. U.N. Treaty on Foreign Jurisprudence. C. Vienna Convention on the Law of Treaties. D. Berne Convention.
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a. True b. False Indicate whether the statement is true or false
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Fill in the blank(s) with the appropriate word(s).
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