In Some Industries,competitive Dynamics Eventually Drive Long-Run Projections of the Future

question 53

Multiple Choice

In some industries,competitive dynamics eventually drive long-run projections of the future returns earned by the firm to an equilibrium level equal to the long-run expected cost of equity capital in the firm.At that point,a firm can be expected to earn ____________ residual income in the future.

• A) increasing
• B) zero.
• C) decreasing
• D) There is not enough information to answer this question

---

Definitions:

Implied Volatility

The predicted future movement in a security's price as inferred from the pricing of its options in the market.

Exercise Prices

The price at which the holder of an option contract can buy (call) or sell (put) the underlying asset.

Black-Scholes Option-Pricing

A mathematical model used to determine the theoretical price of European-style options, factoring in time, its volatility, and other variables.

Expected Return

The weighted average of all possible returns for an investment, considering the probabilities of each outcome.