Choose the best answer, and why.
1. The principal risk return relationship most commonly used in finance (particularly at our level) is called CAPM or SML?
A. They are both basically the same and often used synonymously
B. None of these are correct
C. Cannot be answered.
D. It is called the characteristics Line
2. In utilizing a constant Growth model of valuation ( for both Dividends and Free Cash Flow models) the estimate of the growth rate “g”, must be...
A. equal to the discount rate
B. greater than the discount rate,
C. less than the discount rate
D. Zero, depending on the assumption
3. In utilizing the Dividend Discount Model (DDM) model of valuation the discount rate used is the required return on the stock. In the Free Cash Flow (FCF/Corporate) model of valuation it is the weighted average cost of capital (WACC)
A. True
B. False