Which of the following statements regarding errors in the CAPM inputs is (are)true?
A)Errors in equity premium estimates tend to be large and have a significant influence on the resultant hurdle rates.
B)Errors in the risk-free rate tend to be insignificant.
C)Errors in market-beta estimates tend to be modest.
D)All of the above statements are true.

Question

Quizplus · Accepted Answer

All of the statements regarding errors in the CAPM inputs are true. Errors in equity premium estimates can be large and significantly influence hurdle rates. Errors in the risk-free rate are generally considered to be insignificant due to the stability and predictability of rates such as those on government securities. Errors in market-beta estimates are typically modest, as beta is a relative measure and tends to be stable over short to medium terms for many assets.

Which of the Following Statements Regarding Errors in the CAPM