The correct answer is: C. expected return
The expected return is the return that an investor expects to earn on an investment. It is calculated by taking the average of the possible returns, weighted by their probability of occurrence. The expected return is a key factor in investment decision-making, as it helps investors to determine whether an investment is worth the risk.
The real rate of return is the return on an investment after adjusting for inflation. It is calculated by taking the nominal return and subtracting the inflation rate. The real rate of return is important for investors, as it allows them to compare the returns on different investments in real terms.
Risk is the possibility that an investment will not earn the expected return. There are many different types of risk, including market risk, credit risk, and liquidity risk. Investors must carefully consider the risks of an investment before making a decision to invest.
Expected inflation is the rate at which prices are expected to rise in the future. It is important for investors, as it affects the real rate of return on investments.
In conclusion, the expected return is the primary determinant of an investment’s value. The real rate of return, risk, and expected inflation are all important factors that affect the expected return.