The capital asset pricing model (CAPM) relates the risk return trade-off of individual assets to market returns so that a security has a risk-free rate of return and a premium for risk.
- Explain in detail the components of CAPM.
- Be sure to include the formula and an explanation of beta.
Explain cost of capital in terms of the financing costs to the corporations. Include a detailed explanation of the following:
- Cost of debt
- Cost of preferred stock
- Cost of common stock
- Cost of retained earnings