Discuss Possible Bias Inherent in Estimating the True Beta Value

question 7

Essay

Discuss possible bias inherent in estimating the true Beta value according to Lintner and Douglas.What are the findings of Miller and Scholes on the basis of this evaluation?

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Definitions:

Net Present Value

The discrepancy between the current worth of incoming cash and the current worth of outgoing cash over a certain timeframe, utilized in the process of capital budgeting to evaluate an investment's profitability.

Required Rate Of Return

The minimum expected return an investor demands for an investment, determining the value of potential investments.

Payback Period

The length of time it takes for an investment to generate an amount of income or cash equivalent to the cost of the investment.

Salvage

The prognosticated residual valuation of an asset upon reaching the end of its utility.