Because of the Relationship Between an Asset's Real Rate of Return

question 108

Multiple Choice

Because of the relationship between an asset's real rate of return and its risk, one would expect to find all of the following, except one. Which one?

• A) Corporate stocks have higher rates of return than U.S. Treasury bonds.
• B) Corporate stocks have higher rates of return than U.S. Treasury bills.
• C) Corporate stocks have higher rates of return than corporate bonds.
• D) Stocks of smaller companies have higher expected rates of return than stocks of larger companies.
• E) Mutual funds including stocks of companies in politically volatile developing countries do not have as high a rate of return as mutual funds restricted to stocks of companies in developed economies.

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Definitions:

Allowance for Doubtful Accounts

An account that offsets assets, specifically designed to anticipate the part of accounts receivable that might be uncollectible.

Aging Method

A technique used in accounting to estimate uncollectible accounts receivable by categorizing them based on the length of time they have been outstanding.

Allowance for Doubtful Accounts

A contra-asset account used to reduce the total receivables reported to reflect only the amounts expected to be collected.

Bad Debts Expense

Bad debts expense represents the loss that a company anticipates or realizes from customers who are unable to pay their outstanding balances.