The interest rate that investors receive on financial security to calculate fair value of security is classified as ___________?
Correct answer: C. required rate of return
- A. forward rate of return
- B. unturned rate of return
- C. required rate of return
- D. termed rate of return
Explanation
The required rate of return is the return investors demand for the security's risk and is used to discount its expected cash flows to fair value. Forward and term rates refer to particular interest-rate periods, not the general valuation discount rate.
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Business finance explains how organisations plan, obtain and use money while balancing risk, return and liquidity. Topics include financial statements, time value of money, budgeting, working capital, capital structure, sources of finance, investment appraisal and cost of capital. Capital budgeting evaluates long-term projects, whereas working capital manages day-to-day operations.
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