If Two Assets Have the Same Expected Rate of Return

question 16

True/False

If two assets have the same expected rate of return but different variances, a risk-averse investor should always choose the one with the smaller variance, no matter what other assets she holds.

Evaluate investment options by comparing simple interest rates and potential returns.

Apply the concept of discounted cash flow to ascertain the present value of future payments.

Understand the calculation of return on investment (ROI) in short-term financial instruments.

Analyze the benefits of different savings and loan payment options under varying interest rate scenarios.

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Definitions:

Invested Assets

Invested assets refer to resources or capital that have been allocated to investments, including stocks, bonds, real estate, or other financial assets, aimed at generating future returns.

Sales

How revenue from the sale of merchandise is recorded; the total amount charged customers for merchandise sold, including cash sales and sales on account.

Investment Turnover

A ratio that measures the efficiency of a company in generating sales or revenue from its invested assets.

Profit Margin

The ratio of net profits to revenues for a company, indicating the efficiency at which it can convert revenue into profit.