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John Moffat.
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freddie1980
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Hi,
When working out the Project Specific cost of equity the calculation is Rf+(Beta * Market Premium). However in a similar question earlier in the exam (Q16) the calculation is slightly different Ke=Rf+Beta*(Erm-Rf).
Maybe I’m just conflating two different topics but I’m trying to workout is why does one question ask you for the difference between Erm and Rf but in the latter question you expected to use only Erm
John Moffat
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Erm is the market return.
The market premium is the market return less the risk free rate.
I do explain the distinction and the importance checking the wording of questions carefully in my free lectures on CAPM.
freddie1980
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