Which of the Following Statements Is FALSE

question 87

Multiple Choice

Which of the following statements is FALSE?

• A)The imperfections in the CAPM may be critical in the context of capital budgeting and corporate finance,where errors in estimating the cost of capital are likely to be far more important than small discrepancies in the project cash flows.
• B)To estimate the expected market risk premium,we can look at the historical average excess return of the market over the risk-free interest rate.
• C)The highest beta stocks have tended to underperform what the CAPM predicts.
• D)Given an assessment of an index's future cash flows,we can estimate the expected return of the market by solving for the discount rate that is consistent with the current level of the index.

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Definitions:

Multicollinearity

A situation where two or more independent variables in a multiple regression model show a high degree of correlation.

Regression Coefficients

Numerical values that represent the relationship between an independent variable and the dependent variable in a regression analysis.

Multicollinearity

A condition in regression analysis where two or more predictors are highly correlated, making it challenging to isolate the individual effect of each predictor on the dependent variable.

Independent Variables

Variables in an experiment or regression that are manipulated or categorized to determine their effect on dependent variables.