"There Is No Theoretical Reason to Select a Short-Term Risk-Free

question 16

Essay

"There is no theoretical reason to select a short-term risk-free rate over a long-term risk-free rate,or vice versa in the CAPM or APT risk-expected return relation." Explain the statement.

---

Definitions:

Selling Price

The amount of money for which a product or service is sold to customers, which may include discounts, promotions, or variable pricing strategies.

Conservatism

An accounting principle that requires potentially uncertain expenses and liabilities to be recognized promptly, but revenues only when they are assured.

Accounting Principle

Fundamental guidelines or rules that govern financial accounting practices.

Cost Or Market

An accounting method used to value inventory or securities at the lower of either its original cost or its market value as of the reporting date.