a befine and diferentiate between a stocks expected rate of return; required rat

Question

a befine and diferentiate between a stocks expected rate of return; required rate of return; and realized after-the-fact historical return? 10. Whic h of the three returns described in question 9 is not a factor in making investment decisions? 11. Which two of the three returns described in question 9 are used to make investment decisions? Specifically, state the investment rule for the two relevant returns, an to be larger to induce you to buy the stock or put money into an investment project? d state which of the two returns have

Explanation / Answer

Expected return is the return you would expect to get if you hold the stock for lets say 1 year.

Required return is the return you need from the stock to compensate for the risk.

Historical return is the return you would have got if you purchased the stock lets sy 1 year ago and sold it today

Required return is miniumum return, expected return is forward looking return and not necessarily you will get this return but based on market and stock you can reasonably expect this return, historical return is backward looking return and not necessary to recur in the future

Realized return is not a factor in making investment decisions

Expected return and required return are used to make investment decisions. If expected return is more than required return, buy else sell. Expected return should be more than required return to induce to invest.

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