he whole notion of a cost of capital is ultimately based around an investor's opportunity cost. Investors
Question:
he whole notion of a cost of capital is ultimately based around an investor's opportunity cost. Investors can move so freely between stocks and other asset classes now. Gold has a compounded return rate of 13.1% over the last 10 years, compared to the S&P 500's compounded annual growth rate of 2.1%.
Assuming that we all agreed on the above, which of the following sounds reasonable?
a. Investors would be content with 2.1% of return on their investment in funding companies
b. Gold market is likely to have a higher market premium than stock market does
c. The higher investor's opportunity cost is, the lower companies' WACC
d. Investment in gold looks safer and more lucrative than in stocks
Foundations of Financial Management
ISBN: 978-1259024979
10th Canadian edition
Authors: Stanley Block, Geoffrey Hirt, Bartley Danielsen, Doug Short, Michael Perretta