"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:

Average Cost

The total cost divided by the number of goods produced, also known as cost per unit.

Total-Cost Curve

A graph that shows the relationship between the total cost incurred by a firm and the level of output produced.

Production Function

An equation or graph showing the maximum output that can be produced with a given set of inputs, such as labor and capital, under existing technology.

Marginal Product

Enhanced output originating from the inclusion of an additional input unit.