Question #37
Reading: Reading 20 Discounted Dividend Valuation
PDF File: Reading 20 Discounted Dividend Valuation.pdf
Page: 16
Status: Incorrect
Correct Answer: B
Your Answer: B
Question
The volatility of equity returns requires us to use data from long time periods to compute mean returns. One problem that this causes is that:
Answer Choices:
A. the past is rarely an indication of the future
B. equity premiums vary over time with perceived risk
C. inflation alters the value of the past returns
Explanation
The primary problem with using returns gathered over a long time period is that equity
premiums vary over time with the market's perception of risk and relative risk.