According to the Financial Asset Arbitrage Equation, All Else Equal

question 34

Multiple Choice

According to the financial asset arbitrage equation, all else equal, a rise in the capital gain for a stock implies:

• A) a decline in the user cost of capital.
• B) a rise in the dividend.
• C) a rise in the real interest rate.
• D) that the marginal product of capital stays constant.
• E) a fall in the price of the stock.

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Definitions:

Net Present Value

A financial metric that calculates the present value of expected future cash flows relative to the initial investment, used to assess the profitability of an investment.

Investment Project

An undertaking requiring capital investments with the aim of generating future returns.

Interest Rate

is the percentage of a loan amount charged by the lender to the borrower for the use of assets.

Net Present Value

A calculation that compares the present value of a project's cash inflows to its cash outflows, used to assess the viability or profitability of an investment.