In Practice Which Market Index Is Most Widely Used as a Proxy

question 69

Multiple Choice

In practice which market index is most widely used as a proxy for the market portfolio in the CAPM?

• A)Dow Jones Industrial Average
• B)Wilshire 5000
• C)S&P 500
• D)U.S.Treasury Bill

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Definitions:

Expected Return

The weighted average of all possible returns for an investment, with weights representing the probabilities of each outcome.

Required Return

The minimum gain investors expect from an investment, considering its risk level; synonymous with required rate of return.

Dividend Growth Rate

The annual rate at which the dividends paid by a stock is expected to grow.

Market Equilibrium

Market equilibrium is a condition where supply equals demand for a product, resulting in stable prices.