Question #17
Reading: Reading 39 Economics and Investment Markets
PDF File: Reading 39 Economics and Investment Markets.pdf
Page: 6
Status: Incorrect
Correct Answer: B
Your Answer: A
Question
Market values of assets are most likely to be affected when either:
Answer Choices:
A. Real risk-free rates, inflation premium, timing/magnitude of expected cash flows change
B. Risk free interest rates, risk premiums, timing and/or magnitude of expected cash flows change
Explanation
Market values of assets are affected when the expected cash flows or discount rate
changes. The discount rate can change either due to changes in risk-free rate or due to
changes in risk premiums.