Holding everything else constant, if we have a steep yield curve, what effect would using a longer maturity US treasury security as the risk free rate have on CAPM cost of equity estimates and on DCF valuation estimates?

Multiple Choice

• Higher cost of equity estimates and higher present value estimates

• Higher cost of equity estimates and negative present value estimates

• Lower cost of equity estimates and higher present value estimates

• Higher cost of equity estimates and lower present value estimates

• Lower cost of equity estimates and lower present value estimates