BUISENESS MANAGEMENT
FINANCIAL MANAGEMENT
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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an expected return for delaying consumption.
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an expected return for opportunity costs.
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an expected return for taxes.
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irrational investors who believe risk is always present.
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Detailed explanation-1: -The risk/return tradeoff implies that the return on a riskless asset must be zero. open above $20 because the positive news will result in a higher valuation even though the stock has not yet traded. Joe, a risk-averse investor, is trying to choose between investment A and investment B.
Detailed explanation-2: -It is supposed to compensate the investor for the riskiness of the investment. If the expected return of an investment does not meet or exceed the required rate of return, the investor will not invest. The required rate of return is also called the hurdle rate of return.
Detailed explanation-3: -The expected return is the profit or loss that an investor anticipates on an investment that has known historical rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these results.
Detailed explanation-4: -A risk-free asset is one that has a certain future return-and virtually no possibility of loss. Debt obligations issued by the U.S. Department of the Treasury (bonds, notes, and especially Treasury bills) are considered to be risk-free because the “full faith and credit” of the U.S. government backs them.