Analysts May Use Regression Analysis to Estimate the Index Model

question 26

Multiple Choice

Analysts may use regression analysis to estimate the index model for a stock.When doing so,the slope of the regression line is an estimate of ______________.

• A) the α of the asset
• B) the β of the asset
• C) the σ of the asset
• D) the δ of the asset
• E) none of these

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Definitions:

Internal Rate

Short for Internal Rate of Return (IRR), a metric used in capital budgeting to estimate the profitability of potential investments.

Discount Rate

The interest rate used in discounted cash flow (DCF) analysis to determine the present value of future cash flows.

Useful Life

The estimated lifespan of a fixed asset, during which it can be expected to contribute to company operations.

Present Value

The current value of a future sum of money or stream of cash flows given a specified rate of return, used in discounting to account for the time value of money.