In predicting the expected future return of the market, one of the dangers is that:
A)the past is not indicative of the future.
B)the past period measured is too short to get a reasonable estimate of the future.
C)the equity premium does not include the premium on debt.
D)A and B.
E)A and C.

Question

Quizplus · Accepted Answer

The past may not accurately predict the future, and measuring returns over too short of a period can also lead to inaccurate predictions. Therefore, both choices A and B are correct. Choice C regarding equity premium and debt premium is not directly related to the question of predicting future market returns.

In Predicting the Expected Future Return of the Market, One