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The Realised Yield Approach to Cost of Equity assumes:
AMarket is always efficient
BDividends grow at zero rate
CBeta equals 1
DFuture returns will equal past realised returns
Answer & Solution
Correct answer: D. Future returns will equal past realised returns
1. Realised Yield uses past returns as the proxy for expected future returns.
2. Assumes investors' future expectations mirror past realised yields.
3. Limited when past performance does not represent future expectations.
_Source: ICAI BoS CA Inter Paper 6A, Ch 4 "Cost of Capital", §7_
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