Proponents of the Bubble View Believe That When Using Historical

question 26

Multiple Choice

Proponents of the bubble view believe that when using historical averages to estimate an equity premium,

• A)the average should be based on the last 10 to 15 years of historical data only since earlier data is no longer descriptive of current conditions, e.g., bubbles.
• B)the average should be calculated using data from the earliest recorded point in time in order to ensure that any temporary bubbles are smoothed out.
• C)the equity premium will be lower after recent market surges.
• D)the equity premium will be higher after recent market surges.

---

Definitions:

Profit-Maximizing

Profit-maximizing refers to a strategy or behavior where a firm or individual seeks to achieve the highest possible profit through their decisions and actions, often by adjusting output or pricing.

Externality

The uncompensated impact of one person’s actions on the well-being of a bystander

Total Cost

The sum of all expenses incurred in the production of goods or services, including both fixed and variable costs.

Organic

Pertaining to or derived from living organisms; in agriculture, involving food produced without the use of synthetic pesticides or fertilizers.