In Their Multifactor Model, Chen, Roll, and Ross Found

question 10

Multiple Choice

In their multifactor model, Chen, Roll, and Ross found

• A)that two market indexes, the equally-weighted NYSE and the value-weighted NYSE, were not significant predictors of security returns.
• B)that the value-weighted NYSE index had the incorrect sign, implying a negative market risk premium.
• C)expected changes in inflation-predicted security returns.
• D)that two market indexes, the equally-weighted NYSE and the value-weighted NYSE, were not significant predictors of security returns and that the value-weighted NYSE index had the incorrect sign, implying a negative market risk premium.

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Definitions:

Utility Function

A formula used by economists to map the degree of happiness or satisfaction one derives from consuming quantities of goods and services.

Consumption

The action of using up goods and services to satisfy needs or desires.

Income

The financial gain received by an individual or entity, usually through employment, investments, or business operations.

Interest Rate

The percentage of principal charged by the lender for the use of its money.