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?