Which of the Following Statements Is False

question 13

Multiple Choice

Which of the following statements is false?

• A) Future dividend payments and stock prices are not known with certainty; rather these values are based on the investor's expectations at the time the stock is purchased.
• B) The capital gain is the difference between the expected sale price and the purchase price of the stock.
• C) The sum of the dividend yield and the capital gain rate is called the total return of the stock.
• D) We divide the capital gain by the expected future stock price to calculate the capital gain rate.

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Definitions:

Efficient Markets Hypothesis (EMH)

The hypothesis is that actual capital markets, such as the TSX, are efficient.

CAPM

Capital Asset Pricing Model, a theory that describes the relationship between systematic risk and expected return for assets, particularly stocks.

Security Market Line (SML)

Positively sloped straight line displaying the relationship between expected return and beta.

Arbitrage Pricing Theory (APT)

An equilibrium asset pricing theory that is derived from a factor model by using diversification and arbitrage. It shows that the expected return on any risky asset is a linear combination of various factors.