Smaltz Enterprises is currently involved in its annual review of the firm$$s cost of capital. Historically, the firm has relied on the CAPM to estimate its cost of equity capital. The firm estimates that its equity beta is $1\mathrm{.}25,$ and the yield to maturity on long$-$term US Treasury bonds is $4\mathrm{.}28\%.$ The firm$$s CFO is currently in a debate with one of the firm$$s advisers at its investment bank about the level of the market risk premium. Historically, Smaltz has used $7\%$ to approximate the market risk premium. However, the investment banker argues that this premium has shrunk dramatically in recent years and is more likely to be in the $3\%$ to $4\%$ range.