Which of the Following Statements Is False

question 6

Multiple Choice

Which of the following statements is false?

• A) There is an economic reason why firm's betas might vary-the firm itself varies.
• B) Only a few years of data are required to estimate risk premiums, since both risk premiums and betas remain stable over time.
• C) When firms make new investments in new areas or shut down unprofitable projects in old areas their risk profiles change as well.
• D) Calculating the cost of capital using multifactor models like the FFC factor specification or the CAPM relies on accurate estimates of risk premiums and betas.

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Definitions:

Real Wages

Wages that have been adjusted for inflation, reflecting the actual purchasing power of the income received by workers.

Principal-Agent Problem

A dilemma in a relationship where one party (the agent) is expected to act in the best interest of another (the principal), but may have motivations to act in their own interest instead.

Business Consultant

A professional who provides expert or professional advice in a particular area of expertise, such as business, to help organizations improve performance.

Monopsonist

A market condition where there is only one buyer for a product or service, giving them significant power over prices.