ajpheif16

debt has a fixed rate, say 9% a year, when investors buy debt, they know they are getting 9% more back and the issuer knows it will have to pay 9% more. whereas equity doesnt give you a return rate, investors dont know what they are getting back when they purchase equity. CAPM gives you the expected return on equity using current value, this is also the cost of equity for issuer in the form of dividend and incresing in stock value. This can change year over year,so Ke is mark to market.