An Investment Is Acceptable If Its Average Accounting Return (AAR)

question 21

Multiple Choice

An investment is acceptable if its average accounting return (AAR)

• A)exceeds the target AAR.
• B)is less than the target AAR.
• C)exceeds the firm's return on equity (ROE).
• D)is less than the firm's return on assets (ROA).
• E)is equal to zero.

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Definitions:

EMH

The Efficient Market Hypothesis, a theory that all known information is already reflected in asset prices, implying that it is impossible to consistently achieve higher returns than the overall market.

Semistrong Form

A form of the Efficient Market Hypothesis suggesting that all publicly available information is already reflected in stock prices, making it difficult to achieve superior gains through analysis.

Trading Volume

The total number of securities traded during a given period of time.

Passive Management

Buying a diversified portfolio, often a broad-based market index, without attempting to identify mispriced securities.