A change in the market price of an asset will occur as a result of changes in:
A)investors' required rates of return
B)investors' expected returns from the asset
C)book value of the asset
D)investors' required rates of return and their expected returns from the asset

Question

Quizplus · Accepted Answer

A change in market price of an asset is caused by changes in both investors' required rates of return and investors' expected returns from the asset. This is because the market price of an asset reflects the present value of its expected future cash flows, which are discounted by investors' required rates of return. If investors' required rates of return increase or their expected returns from the asset decrease, the present value of the asset's cash flows decreases and the market price of the asset falls. Conversely, if investors' required rates of return decrease or their expected returns from the asset increase, the present value of the asset's cash flows increases and the market price of the asset rises. Therefore, the correct answer is D.

A Change in the Market Price of an Asset Will