Question

    The risk adjusted discount rate can be calculated by

    the following method:
    A Dividend discount model Correct Answer Incorrect Answer
    B Free cash flow method Correct Answer Incorrect Answer
    C Capital Asset Pricing Model Correct Answer Incorrect Answer
    D None of the above Correct Answer Incorrect Answer
    E Either a or b Correct Answer Incorrect Answer

    Solution

         The Capital Asset Pricing Model (CAPM) describes the relationship between systematic   risk (i.e. non-diversifiable risks) and expected return for equity. As such, it compensates the investors by giving the risk premium for undertaking the systematic risk.

    Practice Next
    More Financial Management Questions

    Relevant for Exams:

    ask-question