James Is Willing to Settle for a 10% Rate of Return

question 55

Multiple Choice

James is willing to settle for a 10% rate of return on EG stock at a time when investors, on average, are requiring an 11% rate of return on the same stock. Which of the following will happen?

• A) James will have to pay more for the stock than he was willing to pay.
• B) Investors with different required rates of return will pay different prices for the stock.
• C) James will not be able to buy the stock unless the price changes.
• D) James will be happy to buy the stock for less than he was willing to pay.

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Definitions:

Net Float

Net float refers to the difference between checks written against and deposited in an account, impacting the available balance before all transactions are settled.

Money Market Securities

Short-term financial instruments typically with high liquidity and short maturities, used by participants as a means for borrowing and lending in the short term.

Maturity

The scheduled day when the full amount of a financial device like a bond or loan must be completely paid off.

Eliminating Float

Strategies or processes aimed at reducing the time delay between when a check is written and when it clears the banking system.