Investment a Has an Expected Return of 15% Per Year,while

question 40

Multiple Choice

Investment A has an expected return of 15% per year,while Investment B has an expected return of 12% per year.A rational investor will choose

• A) Investment A because of the higher expected return.
• B) Investment B because a lower return means lower risk.
• C) Investment A if A and B are of equal risk.
• D) Investment A only if the standard deviation of returns for A is higher than the standard deviation of returns for B.

Understand the principles of time value of money in evaluating loan offers and investment decisions.

Apply the concept of equivalent value to compare different payment schedules.

Evaluate the effect of compounding frequency on the maturity value of investments.

Calculate the original principal based on known outcome, interest rate, and term.

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Definitions:

General Transfer-Prizing Rule

A principle used to determine the price at which goods and services should be transferred between departments within the same organization.

Opportunity Cost

The expense incurred by not choosing the second-best option available during a decision-making process.

Controllable Cost

Expenses that can be directly managed or influenced by a decision-maker within a specific time frame.

Line Authority

The power given to managers to make decisions and issue commands within their scope of responsibility, and to expect those commands to be followed by subordinate employees.