CAPM EXAM 3 FINAL PAPER 2026
COMPLETE QUESTIONS AND ANSWERS
VERIFIED A+
◉ the term premium for long periods is positive because the term
structure of interest rates typically slopes ___
Answer: upward
◉ True
Answer: Book values are often similar to market values for debt
Ideally, we should use market values in the WACC
◉ The industry beta may be a better estimate than the firm's own
beta due to the ___ standard error of the firm estimate
Answer: larger
◉ The ___ of the characteristic line of a stock's returns versus those
of the market measures the stock's systematic risk
Answer: beta, slope
◉ the growth rate of dividends can be estimated using ___
Answer: retention ratio x ROE
, historical dividend growth rates
security analysts' forecasts
◉ True statements about Betas
Answer: Betas may vary over time
A firm's beta may change if the firm increases its debt-equity ratio
the sample size used to compute a firm's beta may be inadequate
◉ about ___ percent of US companies use the CAPM in capital
budgeting
Answer: 75
◉ A firm's capital structure consists of 30 percent debt and 70
percent equity. Its bonds yield 10 percent, pretax, its cost of equity is
16 percent, and the tax rate is 40 percent. What is its WACC?
Answer: (0.7x.16) + (0.3 x .1 x (1-.4) = 13%
◉ the CAPM can be used to estimate the
Answer: required return on equity
◉ True about US Treasury instruments
Answer: They are not expected to default at this time
COMPLETE QUESTIONS AND ANSWERS
VERIFIED A+
◉ the term premium for long periods is positive because the term
structure of interest rates typically slopes ___
Answer: upward
◉ True
Answer: Book values are often similar to market values for debt
Ideally, we should use market values in the WACC
◉ The industry beta may be a better estimate than the firm's own
beta due to the ___ standard error of the firm estimate
Answer: larger
◉ The ___ of the characteristic line of a stock's returns versus those
of the market measures the stock's systematic risk
Answer: beta, slope
◉ the growth rate of dividends can be estimated using ___
Answer: retention ratio x ROE
, historical dividend growth rates
security analysts' forecasts
◉ True statements about Betas
Answer: Betas may vary over time
A firm's beta may change if the firm increases its debt-equity ratio
the sample size used to compute a firm's beta may be inadequate
◉ about ___ percent of US companies use the CAPM in capital
budgeting
Answer: 75
◉ A firm's capital structure consists of 30 percent debt and 70
percent equity. Its bonds yield 10 percent, pretax, its cost of equity is
16 percent, and the tax rate is 40 percent. What is its WACC?
Answer: (0.7x.16) + (0.3 x .1 x (1-.4) = 13%
◉ the CAPM can be used to estimate the
Answer: required return on equity
◉ True about US Treasury instruments
Answer: They are not expected to default at this time
