Suppose Investment a and Investment B Have Identical Cash Flows

question 112

Multiple Choice

Suppose investment A and investment B have identical cash flows.Why would an investor pay more for investment A than investment B?

• A) This is incorrect. You would always pay the same amount for two investments with equal future cash flows.
• B) The risk in the cash flows for investment A is greater than the risk of the cash flows of investment B.
• C) The risk in the cash flows for investment B is greater than the risk of the cash flows of investment A.
• D) The return required for investment B is lower than the return required for investment A.

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Definitions:

Government Spending

Expenditures made by the government sector including spending on goods and services, public projects, and transfer payments.

Economic Expansion

A phase in the business cycle where the economy grows and increases in activity.

Budget Deficits

Occurs when a government's expenditures surpass its revenues during a given period, leading to borrowing or use of saved funds.

Budget Surpluses

Budget surpluses occur when a government's revenue exceeds its expenditures over a specific period of time.