Net Book Value Produces a Misleading Increase in Return on Investment

question 46

Multiple Choice

Net book value produces a misleading increase in return on investment because:

• A) investment centres with old assets will show a higher return on investment than centres with new assets.
• B) investment centres with old assets will show a lower return on investment than investment centres with new assets.
• C) investment centres with old assets will show an equal return on investment centres with new assets.
• D) book value reflects changing market values.

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Definitions:

Beta

A measure of the volatility, or systematic risk, of a security or a portfolio compared to the market as a whole.

Regression Line

A line of best fit through a dataset in statistical analysis, showing the relationship between the independent variable and the dependent variable.

CAPM (Capital Asset Pricing Model)

A model that describes the relationship between systematic risk and expected return for assets, particularly stocks.

Risk-Free Rate

The theoretical return on an investment with no risk of financial loss, typically represented by the yield on government securities.