Which Two of the Following Are Implicit Assumptions When Estimating

question 27

Multiple Choice

Which two of the following are implicit assumptions when estimating the equity risk premium?

• A) There has been no systematic change in the risk aversion of investors over time.
• B) Historical returns are so unreliable that they should be ignored.
• C) The index being used as a benchmark has had an average riskiness that has not changed in a systematic way over time.
• D) The risk premium is now so small that it can be ignored.

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Definitions:

Absolute Value

The length between a number and zero on a number line, disregarding its direction.

Domain

The domain of a function is the set of all possible input values (usually x-values) for which the function is defined.

Real Numbers

All the numbers on the number line, including rational and irrational numbers, but not imaginary numbers.

Radical Expression

An expression that includes a radical symbol, which indicates the root of a number.