Because the Market Return Represents the Return on an Average

question 71

True/False

Because the market return represents the return on an average stock,that return carries risk with it.As a result,there exists a market risk premium which is the amount over and above the risk-free rate that is required to compensate an investor for assuming an average amount of risk.

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Definitions:

Absorption Costing

A cost accounting method that includes all manufacturing costs - direct materials, direct labor, and both variable and fixed manufacturing overhead - in the cost of a product.

Cost-plus Pricing

A pricing tactic in which the final sale price is established by applying a predetermined markup on top of the product's purchase cost.

Return on Investment

A financial ratio measuring the gain or loss generated on an investment relative to the amount of money invested.

Selling Price

The amount of money charged for a product or service, typically set to cover costs and generate profit.