stock owners expect a rate of return from equity which is commensurate with the risk they are assuming. This is called .....

FINANCIAL MANAGEMENT

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Question [CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]

stock owners expect a rate of return from equity which is commensurate with the risk they are assuming. This is called ____

A	cost of equity
B	cost of debts
C	Either A or B
D	None of the above

Explanation:

Detailed explanation-1: -The market rate of return is the average market rate. In general, a company with a high beta-that is, a company with a high degree of risk-will have a higher cost of equity. The cost of equity can mean two different things, depending on who’s using it.

Detailed explanation-2: -The cost of capital refers to what a corporation has to pay so that it can raise new money. The cost of equity refers to the financial returns investors who invest in the company expect to see.

Detailed explanation-3: -CAPM is a formula used to calculate the cost of equity-the rate of return a company pays to equity investors. For companies that pay dividends, the dividend capitalization model can be used to calculate the cost of equity.

Detailed explanation-4: -The required rate of return (RRR) is the minimum return an investor will accept for owning a company’s stock, as compensation for a given level of risk associated with holding the stock. The RRR is also used in corporate finance to analyze the profitability of potential investment projects.

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BUISENESS MANAGEMENT

FINANCIAL MANAGEMENT