Question #2
Reading: Reading 17 Cost of Capital - Advanced Topics
PDF File: Reading 17 Cost of Capital - Advanced Topics.pdf
Page: 1
Status: Unattempted
Correct Answer: B
Question
When attempting to build a risk premium into the required returns of stocks in a developing country, an analyst should use the:
Answer Choices:
A. country’s weighted average cost of capital
B. country spread model
C. modified Gordon Growth model
Explanation
The country spread model uses data from a developed market, then adjusts it using the
difference between the bond yields for the emerging and developed markets. Neither a
modified Gordon Growth model nor a weighted average cost of capital will do this job.