Chapter11: Capital Budgeting Decisions
Section: Chapter Questions
Problem 18Q: Briefly explain how NPV is computed and interpreted.
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Question
Define characteristic line
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Introduction
Characteristic line is a graphical representation of alpha (α) where alpha is the difference between expected return minus required return.
This line is also known as Security’s characteristic line. It shows the relationship between security return and market return. It is used to analyze the performance of securities in the market.
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