Reading 36: Return Concepts- LOS a～ Q1-2 efficient, expected, concepts, discount, following

wzaina

 

LOS a: Distinguish among the following return concepts: holding period return, realized return and expected return, required return, discount rate, the return from convergence of price to intrinsic value (given that price does not equal value), and internal rate of return.

Q1. In an efficient market, a mutual fund’s required return is the same as the:

A)   internal rate of return.

B)   holding period return.

C)   net asset value return.

 

Q2. To determine the present value of an investment based on a future estimate of the investment’s value, an analyst should use the:

A)   discount rate.

B)   required return.

C)   internal rate of return.

The discount rate is the rate used to find the present value of an investment.

wzaina

 

 

LOS a: Distinguish among the following return concepts: holding period return, realized return and expected return, required return, discount rate, the return from convergence of price to intrinsic value (given that price does not equal value), and internal rate of return. fficeffice" />

Q1. In an efficient market, a mutual fund’s required return is the same as the:

A)   internal rate of return.

B)   holding period return.

C)   net asset value return.

Correct answer is A)

The internal rate of return (IRR) is the rate that equates the value of the discounted cash flows to the current price of the security. In an efficient market, where securities are properly priced, the IRR and required return are the same.

 

Q2. To determine the present value of an investment based on a future estimate of the investment’s value, an analyst should use the:

A)   discount rate.

B)   required return.

C)   internal rate of return.

Correct answer is A)

The discount rate is the rate used to find the present value of an investment.

 

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