In Comparing the Constant-Growth Model and the Capital Asset Pricing

Multiple Choice

In comparing the constant-growth model and the capital asset pricing model (CAPM) to calculate the cost of common stock equity, ________.

A) the CAPM ignores risk, while the constant-growth model directly considers risk as reflected in the beta
B) the CAPM directly considers risk as reflected in the beta, while the constant-growth model uses the market price as a reflection of the expected risk-return preference of investors
C) the CAPM directly considers risk as reflected in the beta, while the constant growth model uses dividend expectations as a reflection of risk
D) the CAPM indirectly considers risk as reflected in the market return, while the constant growth model uses dividend expectations as a reflection of risk