“An investment’s rate of return is inversely related to its price.” Explain.
What will be an ideal response?
The higher an investment’s price, the more that price infringes on the asset’s rate of return. For example, suppose an asset has an initial price of $400 and gains $50 one year later. The asset earns a rate of return of 12.5% (50/400). Now suppose the asset price rises to $500 and still gains $50 one year later. The rate of return has been reduced to 10% (50/500). When the level of earnings is fixed, the higher the price, the lower the rate of return.
You might also like to view...
Refer to Figure 10.1. The Nash equilibrium occurs on the ________ page, in the ________ cell
A) Contribute; upper-left B) Contribute; lower-right C) Don't Contribute; lower-right D) Don't Contribute; upper-left
A binding price floor:
A. will cause quantity demanded to exceed quantity supplied. B. will cause quantity supplied to exceed quantity demanded. C. will increase total well-being. D. will set a legal maximum price in a market.
The sum of consumption and investment is: a. total production. b. aggregate supply
c. aggregate disposable demand. d. aggregate expenditures.
If a nation imports more than it exports, then its net exports are:
a. positive. b. negative. c. zero. d. unstable.