Final answer:
The Dividend Yield is not required when using the Capital Asset Pricing Model (CAPM) to calculate the cost of equity. CAPM uses Risk-Free Rate, Beta, and Market Risk Premium to determine expected returns based on market risk.
Step-by-step explanation:
The variable not required when using the Capital Asset Pricing Model (CAPM) to compute the cost of equity capital is d) Dividend Yield. The CAPM formula is typically represented as Cost of Equity = Risk-Free Rate + Beta * (Market Risk Premium), where:
- Risk-Free Rate is the return on a risk-free investment, such as a U.S. Treasury bond.
- Beta is a measure of a stock's volatility in relation to the market.
- Market Risk Premium is the additional return expected from holding a risky market portfolio instead of risk-free assets.
Dividend Yield is considered in other models like the Dividend Discount Model (DDM), but it is not part of the CAPM, which focuses on the expected return of an investment based on systematic risk.
Answer: d) Dividend Yield