required rate of equity return, r always, required, example, problems, expected

dmrktrading

When calculating required return on equity, on free cash flow problems for example, do we always use CAPM to solve for rate if not given?

In what instances do we not subtract the expected market return from the risk free rate when solving for required rate of return?

CAPM = RFR + Beta (E market return - RFR)

vs

required return = RFR + Beta (Mkt risk premium)

Thanks,

John

yospaghetti

the analyst uses any model he wants. I hear capm is not the most used model in practice. In exam u will only be given input for one method, or u will be told which method to use. Cfai writes very clear questions

I am not sure what u meen by second part. The items in brackets are equivilant so it depends on what u r given

If u have risk premium you use it as if. If u dont have it, u get it by doin market-rf. If your question is realy just that, i hope u dwel on it and undestand why it is done. It is very simple yet very important