The correct answer is A. Capital asset pricing model (CAPM).
CAPM is a model that calculates the expected return of a security based on its beta and the expected return of the market portfolio. It is the most widely used model for estimating the cost of equity because it is relatively simple to use and it takes into account the risk of the security.
The dividend yield method is a method of estimating the cost of equity that uses the dividend yield of the security. The dividend yield is the ratio of the annual dividend to the current market price of the security. The dividend yield method is not as accurate as CAPM because it does not take into account the risk of the security.
Gordon’s dividend discount model is a method of estimating the cost of equity that uses the dividend growth rate and the current dividend of the security. The dividend growth rate is the expected rate of growth of the dividend. Gordon’s dividend discount model is not as accurate as CAPM because it does not take into account the risk of the security.
The earnings yield method is a method of estimating the cost of equity that uses the earnings yield of the security. The earnings yield is the ratio of earnings per share to the current market price of the security. The earnings yield method is not as accurate as CAPM because it does not take into account the risk of the security.