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      Question

      Which of the following is not a component of cost of

      equity in CAPM?
      A Risk-free rate Correct Answer Incorrect Answer
      B Market risk premium Correct Answer Incorrect Answer
      C Beta of the firm Correct Answer Incorrect Answer
      D Cost of debt Correct Answer Incorrect Answer
      E All are components except cost of debt Correct Answer Incorrect Answer

      Solution

      CAPM: Cost of equity = Risk-free rate + Beta Γ— Market premium. Cost of debt is separate.

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