Under CAPM, Cost of Equity equals:
ARf + Rm
BRf + β × (Rm − Rf)
CD/P + g
DEPS/P + g
Answer & Solution
Correct answer: B. Rf + β × (Rm − Rf)
1. CAPM: Ke = Rf + β × (Rm − Rf).
2. Rf = risk-free rate; β = stock beta; Rm = expected market return.
3. Risk premium = β × (Rm − Rf).
_Source: ICAI BoS CA Inter Paper 6A, Ch 4 "Cost of Capital", §7_
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