The correct answer is: D. cost of equity.
Cost of equity is the rate of return that a company must earn on its equity capital in order to satisfy its investors. It is a measure of the riskiness of a company’s equity and is used to calculate the company’s cost of capital.
Capital gain expected by stockholders and dividends are included in the cost of equity because they are both sources of return for equity investors. Capital gains are the increase in the value of a stock over time, and dividends are the payments that companies make to their shareholders out of their profits.
Debt rate, investment return, and interest rate are all measures of the cost of debt, which is the cost of borrowing money from lenders. Debt is a less risky form of financing than equity, so the cost of debt is typically lower than the cost of equity.
Here is a brief explanation of each option:
- Debt rate: The debt rate is the interest rate that a company pays on its debt. It is a measure of the cost of borrowing money from lenders.
- Investment return: Investment return is the total return on an investment, including both capital gains and dividends. It is a measure of the performance of an investment.
- Interest rate: The interest rate is the price of borrowing money. It is a measure of the cost of debt.