Which of the Following Statements Is CORRECT

question 5

Multiple Choice

Which of the following statements is CORRECT?

• A)The CAPM is an ex ante model, which means that all of the variables should be historical values that can reasonably be projected into the future.
• B)The beta coefficient used in the SML equation should reflect the expected volatility of a given stock's return versus the return on the market during some future period.
• C)The general equation: Y = a + bX + e, is the standard form of a simple linear regression where b = beta, and X equals the independent return on an individual security being compared to Y, the return on the market, which is the dependent variable.
• D)The rise-over-run method is not a legitimate method of estimating beta because it measures changes in an individual security's return regressed against time.

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Definitions:

Compounded Quarterly

The method of figuring out interest that includes both the original principal amount and the interest that has compounded from earlier periods, calculated every three months.

Long Term Liability

A financial obligation of a company that is due for a period exceeding one year, including bonds payable, long-term loans, lease obligations, and pension obligations.

Future Value

The amount of money an investment will grow to over a period of time at a specified interest or growth rate.

Future Value

The estimated amount that an investment will grow to over a period of time at a specified rate of interest.