Which of the following statements is FALSE?
A)The CAPM states that we should use the risk-free interest rate corresponding to the investment horizon of the firm's investors.
B)To determine the risk premium for a stock using the security market line,we need an estimate of the market risk premium.
C)Most financial analysts report using the yields of Treasury Bills to determine the risk-free rate when valuing a long-term investment with an indefinite horizon.
D)The risk-free interest rate is generally determined using the yields of U.S.Treasury securities,which are free from default risk.

Question

Quizplus · Accepted Answer

The statement that most financial analysts use Treasury Bills to determine the risk-free rate for long-term investments with indefinite horizons is false. Treasury Bills are short-term securities with maturities of one year or less, so they are not appropriate for valuing long-term investments. Instead, analysts typically use the yield on longer-maturity Treasury securities, such as Treasury notes or bonds, to estimate the risk-free rate for long-term investments.

Which of the Following Statements Is FALSE