Which of the Following Statements Is True

question 21

Multiple Choice

Which of the following statements is true?

• A)Asset prices and average expected rates of return are directly related, but levels of nondiversifiable risk and average expected rates of return are inversely related.
• B)Asset prices and average expected rates of return are inversely related, but levels of nondiversifiable risk and average expected rates of return are directly related.
• C)Asset prices, average expected rates of return, and levels of nondiversifiable risk are all directly related.
• D)Average expected rates of return are inversely related to both asset prices and levels of nondiversifiable risk.

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Definitions:

Market Capitalization Rate

The expected return on an investment in the market, derived from the collective appraisal of all investors' expectations of future market performance.

Present Value of Growth Opportunities

A valuation method that estimates the current worth of a company's future investment opportunities, considering the time value of money.

ROE

Return on Equity, a measure of a corporation's profitability that reveals how much profit a company generates with the money shareholders have invested.

Expected Earnings

The forecasted income of a company, often used by investors to gauge the company's future profitability.