contestada

If a firm is privately owned, and its stock is not traded in public markets, then we cannot measure its beta for use in the CAPM model, we cannot observe its stock price for use in the dividend growth model, and we don't know what the risk premium is for use in the bond-yield-plus-risk-premium method. All this makes it especially difficult to estimate the cost of equity for a private company. True False

Respuesta :

Parrain

Answer: True

Explanation:

Beta enables us to be able to calculate the risk of a stock in relation to how the market is moving. This is known as the systematic risk. Beta, needs to be calculated on based on the trading data of the stock.

If the stock is not publicly traded, it would not have the trading data required to find the beta. As we cannot get the beta, we would be unable it to calculate the return on stock and therefore the dividend growth model.

Otras preguntas