Calculate the market premium

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As an analyst for a big firm, you use CAPM to estimate the equity cost of capital, but it just happens that when you calculate the market premium it's less than the risk-free rate over the previous 5 years because there was a recession over that period. What would you do in such a case? (You may choose more than one answer)

a. You would give up on CAPM as a flawed model in concept

b. You would use a different market as a proxy for a well-diversified portfolio

c. You would accept the numbers as low as they are and apply it anyway in model

d. You would go back further over a larger period like 10 years

e. You would make up some rationale for what a realistic equity risk premium ought to be and apply it in the mode

Reference no: EM133109881

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