Question #7
Reading: Reading 17 Cost of Capital - Advanced Topics
PDF File: Reading 17 Cost of Capital - Advanced Topics.pdf
Page: 3
Status: Unattempted
Correct Answer: A
Question
Estimates of historical ERP resulting from backfilling of index data is most likely to:
Answer Choices:
A. bias the estimate upward
B. result in an unbiased estimate
C. bias the estimate downward
Explanation
Backfilling (going back in historical time to obtain data after index constituents are
identified) would most likely result in survivorship bias—and, therefore, bias the estimate
of ERP upward.