The Important Characteristic of Normative Statements Is That They

question 60

Multiple Choice

The important characteristic of normative statements is that they

• A) explain what really exists.
• B) are based on somebody's values and cannot be tested.
• C) explain what normally happens in the real world.
• D) help guide us to what will normally occur if some economic variable changes its value.
• E) do not use the ceteris paribus assumption.

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Definitions:

Required Return

The smallest annual percent yield necessary to convince people or corporations to allocate funds towards a certain security or project.

WACC

Weighted Average Cost of Capital, a calculation of a firm's cost of capital in which each category of capital is proportionately weighted, used to determine the rate of return a company must earn on its existing assets to satisfy its creditors, owners, and other providers of capital.

Low Risk Projects

Investments or projects that are considered to have a lower probability of resulting in a financial loss.

Investor Risk Aversion

The tendency of investors to prefer lower-risk investments to avoid potential losses.