Evidence That Is Based on a Variable Having Its Effect

question 33

Multiple Choice

Evidence that is based on a variable having its effect on another variable through channels rather than a direct effect is known as

• A)indirect-model evidence.
• B)organizational-model evidence.
• C)reduced-form evidence.
• D)structural-model evidence.

Understand the risk-return relationship as defined by modern financial theories.

Recognize the role of macroeconomic factors in asset pricing (via multifactor models).

Understand the concept and process of constructing zero-investment portfolios for arbitrage.

Differentiate between the CAPM and APT in terms of assumptions and applications.

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Definitions:

Net Cash Flow

The total amount of money being transferred into and out of a business, specifically the sum of cash receipts minus cash payments over a given period of time.

Maximum Cost

The highest possible expense that can be incurred for a specific activity, project, or purchase.

Method

A systematic way of accomplishing something. In a financial context, this could refer to a specific approach or procedure adopted for accounting or analysis purposes.

Average Rate of Return Method

A method of evaluating capital investments by calculating the average annual profit expected from the investment and dividing it by the initial investment cost.