If the Expected Rate of Return for a Particular Investment

question 32

True/False

If the expected rate of return for a particular investment, as seen by the marginal investor, exceeds its required rate of return, we should soon observe an increase in demand for the investment, and the price will likely increase until a price is established that equates the expected return with the required return.

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Definitions:

Variable Costing

An accounting method that includes only variable costs—costs that change with production levels—in the calculation of cost of goods sold and excludes fixed costs.

Net Operating Income

The total earnings from a company's operations after deducting operating expenses but before interest and taxes.

Net Operating Income

The profit a company makes after deducting operating expenses from gross profit, not including income and expenses from investments and interest.

Variable Costing

An accounting method that only considers variable costs in determining the cost of products.