Asked by
ariana campa
on Dec 01, 2024
Verified
Short-term US Treasury Bills yield 6%, the market's current yield is 14%, and a company's beta is 1.2. According to the CAPM approach, the estimated cost of retained earnings is 15.6%.
CAPM Approach
Capital Asset Pricing Model, a framework used to determine the theoretical appropriate required rate of return of an asset, considering risk and the cost of capital.
Retained Earnings
The portion of a company's net income that is kept within the company rather than distributed to shareholders as dividends.
- Acquire knowledge on how the required returns from investors correlate with the components of a company's cost of capital.
Verified Answer
VM
Learning Objectives
- Acquire knowledge on how the required returns from investors correlate with the components of a company's cost of capital.