All else equal,higher expected cash flows associated with a financial asset results in a higher required rate of return on that financial asset.

Question

Quizplus · Accepted Answer

The statement is actually the opposite of what is true. Higher expected cash flows associated with a financial asset actually result in a lower required rate of return on that financial asset, assuming all other factors remain equal. This is because investors are willing to accept a lower rate of return in exchange for the higher expected cash flows.

All Else Equal,higher Expected Cash Flows Associated with a Financial