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Forums › Ask ACCA Tutor Forums › Ask the Tutor ACCA FM Exams › Questions on ACCA Open tuition FM Mock Exam Question 18 and 24
Hi John,
I noticed that the CAPM was used for calculation of the Specific Cost of Equity (Question 24) and Rate of Return (Question 18).
Now the question is why they did not subtract out the risk free element while doing the calculation?
To be more details, the CAPM required us to use the Beta x (market risk – risk free). But the answer for both question did not less out of the risk free element.
I have another question related to Specific Cost of Equity and Rate of return.
May I ask what is the different between both of them and while doing the calculation of Specific Cost of Return, should I only use Beta Equity, where else for Rate of Return, i should only use Beta Asset.
Thanks 🙂
The market risk less the risk free rate is known as the risk premium. I do make this very clear in my free lectures on CAPM.
With regard to your second question, it depends on the exact wording and you need to watch my free lectures on this.