Which Statement Is Correct

question 101

Multiple Choice

Which statement is correct?

• A) the superior performance of value stocks is exactly what the CAPM would predict.
• B) the CAPM predicts that investors are concerned only with the risk that cannot be diversified away.
• C) few financial managers in practice use the CAPM to estimate the cost of capital.
• D) the CAPM is a model of actual returns whereas the cost of capital is concerned with expected returns.

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Definitions:

Confidence Interval

A range of values, derived from sample data, that is likely to contain the value of an unknown population parameter, expressed with a certain level of confidence.

Population Standard Deviation

A measure of the dispersion or spread of all members of a population from its mean value.

Interval Estimate

A range of values used to estimate a population parameter, typically expressed through confidence intervals.

Population Mean

The average value of a population's characteristic, calculated by summing all values and dividing by the population size.