When a Stock Has an Average Rate of Return of 10

question 240

Multiple Choice

When a stock has an average rate of return of 10% per year, then the value of the stock:

• A) triples in 5 years.
• B) doubles in 7 years.
• C) doubles in 10 years.
• D) triples in 10 years.

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Definitions:

Profitability Index

A financial tool used to evaluate the desirability of an investment, calculated as the present value of future cash flows divided by the initial investment.

Net Cash Flow

The variance between the cash coming into and going out of a business within a given timeframe.

Discount Rate

The interest rate used to discount future cash flows to their present value, enabling comparison of the value of investments made at different times.

Net Present Value

A method used to evaluate investments by calculating the present value of expected future cash flows minus the initial investment cost.