Estimates of the rate of return on a security based on the historical arithmetic average will probably tend to _ the expected return for the long-term and estimates using the historical geometric average will probably tend to _ the expected return for the short-term. Multiple Choice overestimate; underestimate accurately estimate; accurately estimate overestimate; overestimate

This measurement is a metric used in capital budgeting to know, understand and estimate how profitable and potential an investment can be. It is a discount rate that makes equal to zero the net present value of all cash flows from a particular project.

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batolisis batolisis · Answer 2 · 2020-03-30T21:59:20+02:00

Answer:

overestimate and underestimate

Explanation:

Relying on an average data collected from historical Data can lead to the over estimation of the rate of return of the given security because alot of time is considered while collecting the data and as with every security they have their good times( years ) and bad times(years). therefore the average of these data, cannot be relied upon to predict the exact rate of return a security will yield in the long term

while in the short term the estimates using the historical geometric average, will in most cases lead to the underestimation of the rate of return of a security.

although using Historical arithmetic average of data gotten is a an effective way to determine ROI ( rate of return ) they cannot be relied on 100% other factors have to be considered as well.