If You Plotted the Returns of a Given Stock Against

question 8

True/False

If you plotted the returns of a given stock against those of the market, and if you found that the slope of the regression line was negative, the CAPM would indicate that the required rate of return on the stock should be less than the risk-free rate for a well-diversified investor, assuming that the observed relationship is expected to continue into the future.

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Definitions:

Time Value

The concept that money available at the present time is worth more than the same amount in the future due to its potential earning capacity.

Payback Period

The length of time required for an investment to recover its initial outlay in terms of profits or savings.

Useful Life

The estimated duration for which an asset is expected to be functional and useful before it needs to be replaced or repaired.

Initial Cost

The initial amount of money invested or spent to purchase or start a new project, asset, or business, excluding ongoing or future costs.