Concept Check - Week 5
1. According to the CAPM, we can determine the cost of capital of an investment by comparing it
to what portfolio?
2. What inputs do we need to estimate a firm's equity cost of capital using the CAPM?
3. How do you determine the weight of a stock in the market portfolio?
4. What is a market proxy?
5. How can you estimate the market risk premium?
6. How can you estimate a stock's beta from historical returns?
, 7. How do we define a stock's alpha, and what is its interpretation?
8. Why does the yield to maturity of a firm's debt generally overestimate its debt cost of capital?
9. Describe two methods that can be used to estimate a firm's debt cost of capital.
10. What data can we use to estimate the beta of a project?
11. Why does the equity beta of a levered firm differ from the beta of its assets?
1. According to the CAPM, we can determine the cost of capital of an investment by comparing it
to what portfolio?
2. What inputs do we need to estimate a firm's equity cost of capital using the CAPM?
3. How do you determine the weight of a stock in the market portfolio?
4. What is a market proxy?
5. How can you estimate the market risk premium?
6. How can you estimate a stock's beta from historical returns?
, 7. How do we define a stock's alpha, and what is its interpretation?
8. Why does the yield to maturity of a firm's debt generally overestimate its debt cost of capital?
9. Describe two methods that can be used to estimate a firm's debt cost of capital.
10. What data can we use to estimate the beta of a project?
11. Why does the equity beta of a levered firm differ from the beta of its assets?
