An analyst wants to account for financial distress and market capitalization as well as market risk in

Question:

An analyst wants to account for financial distress and market capitalization as well as market risk in his cost of equity estimate for a particular traded company. Which of the following models is most appropriate for achieving that objective?
A. The capital asset pricing model (CAPM)
B. The Fama - French model
C. A macroeconomic factor model.

Capital Asset Pricing Model
The Capital Asset Pricing Model (CAPM) describes the relationship between systematic risk and expected return for assets, particularly stocks. The CAPM is a model for pricing an individual security or portfolio. For individual securities, we make use of the security market line (SML) and its... Cost Of Equity
The cost of equity is the return a company requires to decide if an investment meets capital return requirements. Firms often use it as a capital budgeting threshold for the required rate of return. A firm's cost of equity represents the...

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