The Variation in the Rate of Return One Can Expect

question 222

Multiple Choice

The variation in the rate of return one can expect from ownership of stocks will generally be smaller if

• A) all of the funds are invested in a specific sector of the economy such as the automobile industry.
• B) a diverse set of stocks is held over a lengthy period of time such as 30 or 40 years.
• C) all of the funds are invested in a single stock.
• D) the funds are invested for a relatively short period of time.

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Definitions:

Coal Company

A business entity engaged in the extraction, processing, and selling of coal as an energy source or raw material.

Salvage Value

The anticipated remaining value of an asset once it has completed its functional lifespan, typically taken into account in computations of depreciation.

Natural Resources

Assets that come from the Earth and are used to produce goods and services, such as timber, oil, and minerals.

Units-of-Activity Method

The Units-of-Activity method is a depreciation approach based on the estimated usage, activity, or units produced over the asset's useful life, making depreciation expense directly proportional to its productivity.