The Expected Return on a Stock That Is Computed Using

question 254

Multiple Choice

The expected return on a stock that is computed using economic probabilities is:

• A) Guaranteed to equal the actual average return on the stock for the next five years.
• B) Guaranteed to be the minimal rate of return on the stock over the next two years.
• C) Guaranteed to equal the actual return for the immediate twelve month period.
• D) A mathematical expectation based on a weighted average and not an actual anticipated outcome.
• E) The actual return you should anticipate as long as the economic forecast remains constant.

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Definitions:

Discounted Payback

A capital budgeting method that calculates the time needed to recoup the initial investment in present value terms.

Compute

The process of using mathematical and logical operations to perform tasks and solve problems by a computer.

Average Accounting Return

The average accounting return is a financial ratio that represents the average annual accounting profit compared to the initial investment.

IRR

Internal Rate of Return, a financial metric used to estimate the profitability of potential investments by finding the interest rate that makes the net present value (NPV) of all cash flows from a particular project equal to zero.