Multidivisional Companies Unable to Obtain a Surrogate Beta for Estimating

question 64

True/False

Multidivisional companies unable to obtain a surrogate beta for estimating a division's risk-adjusted rate of return sometimes can estimate beta from internal accounting data. This approach is called the pure play method.

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Definitions:

Real Rate of Interest

The real rate of interest is the rate of interest an investor expects to receive after allowing for inflation, reflecting the true purchasing power of interest earnings.

Supply and Demand

A fundamental economic model describing how prices and quantities of goods and services are determined in a market system based on the interaction between suppliers and consumers.

Holding-Period Return

Holding-Period Return is the total return received from holding an asset or portfolio of assets over a period of time, factoring in both income and capital gains or losses.

Capital Gain Yield

The change in the price of a security or investment over time, not including dividends or interest earnings, usually expressed as a percentage.