Series 79 practice questioneasyWACC Inputs
Which of the following is typically used as the risk-free rate in the calculation of the cost of equity?
- AYield on 10-year U.S. Treasury notes✓ Correct answer
- BCompany’s current stock price
- CYield on high-yield corporate bonds
- DPrime lending rate
Explanation
Why A — Yield on 10-year U.S. Treasury notes
The yield on 10-year U.S. Treasury notes is commonly used as the risk-free rate in CAPM formulations. Stock price, corporate bond yields, and the prime rate are not standard substitutes.
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