The correct answer is A. 1, 3, 2, 4.
The Capital Asset Pricing Model (CAPM) is the most accurate measure of cost of equity. It takes into account the risk-free rate, the market risk premium, and the beta of the stock. The dividend-price ratio (DPR) is a less accurate measure of cost of equity. It only takes into account the dividend yield of the stock. The earnings-price ratio (P/E ratio) is the least accurate measure of cost of equity. It only takes into account the earnings per share of the stock.
The CAPM is the most accurate measure of cost of equity because it takes into account the risk-free rate, the market risk premium, and the beta of the stock. The risk-free rate is the rate of return on a risk-free investment, such as a U.S. Treasury bill. The market risk premium is the additional return that investors demand for investing in stocks over a risk-free investment. The beta of a stock is a measure of its volatility relative to the market. A stock with a beta of 1 has the same volatility as the market, a stock with a beta of 2 is twice as volatile as the market, and a stock with a beta of 0.5 is half as volatile as the market.
The DPR is a less accurate measure of cost of equity because it only takes into account the dividend yield of the stock. The dividend yield is the annual dividend per share divided by the stock price. The DPR does not take into account the risk of the stock or the growth potential of the stock.
The P/E ratio is the least accurate measure of cost of equity because it only takes into account the earnings per share of the stock. The P/E ratio does not take into account the risk of the stock or the growth potential of the stock.
In conclusion, the CAPM is the most accurate measure of cost of equity, followed by the DPR, and then the P/E ratio.