The correct answer is: Both A and B.
The required rate of return is the minimum rate of return that an investor expects to earn on an investment. It is also known as the going rate of return or the yield. The required rate of return is used to calculate the present value of a bond’s cash flow.
The required rate of return is determined by a number of factors, including the risk of the investment, the maturity of the investment, and the inflation rate. The higher the risk of the investment, the higher the required rate of return. The longer the maturity of the investment, the higher the required rate of return. The higher the inflation rate, the higher the required rate of return.
The required rate of return is an important concept in finance. It is used to calculate the present value of a bond’s cash flow, to determine the fair value of a bond, and to make investment decisions.
Here is a brief explanation of each option:
- A. Going rate of return is the rate of return that an investor expects to earn on an investment. It is also known as the required rate of return or the yield. The going rate of return is determined by a number of factors, including the risk of the investment, the maturity of the investment, and the inflation rate. The higher the risk of the investment, the higher the going rate of return. The longer the maturity of the investment, the higher the going rate of return. The higher the inflation rate, the higher the going rate of return.
- B. Yield is the annual rate of return on a bond, calculated as the coupon rate divided by the bond’s price. The yield is a measure of the bond’s interest rate. The higher the yield, the more interest the bond pays.
- C. Earning rate is the rate of return on an investment, calculated as the income from the investment divided by the investment’s cost. The earning rate is a measure of the investment’s profitability. The higher the earning rate, the more profitable the investment.