One Method to Forecast the Risk Premium Is to Use

question 52

Multiple Choice

One method to forecast the risk premium is to use the _______.

• A) coefficient of variation of analysts' earnings forecasts
• B) variations in the risk free rate over time
• C) average historical excess returns for the asset under consideration
• D) average abnormal return on the index portfolio

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Definitions:

Marginal Cost

The increase in total cost that arises from producing one additional unit of a good or service, a critical factor in economic decision-making.

Predatory Pricing

Practice of pricing to drive current competitors out of business and to discourage new entrants in a market so that a firm can enjoy higher future profits.

Antitrust Laws

Legislation designed to regulate the conduct of businesses to promote fair competition for the benefit of consumers, preventing monopolies and practices that restrict trade.

Price Fixing

An illegal or regulated agreement among competitors to maintain a certain price level for goods or services, often leading to less competitive markets and higher prices for consumers.