Give an example of expected return:

Give an example of expected return:

Expert Solution

Liquidity of the market affects the price of the security to a greater extent. Research had interpreted that there is a stronger link between the systematic risks of liquidity in pricing the security in the market.

The return expected would change in the varied condition of economic, liquidity changes, and investment demand in a particular market.

The expectation of investors depends upon the investment made that can be long or short term depending upon the source and nature of their income.

For example if a person invest his 20% income in Investment A having yield of 10% and 80% income in Investment B having yield of 15%.

Then Expected Return would be 20%*10% + 80%*15% = 14%

The determinants in the return expected for a security would be: -

a. Maturity Time: - The longer would be the time of maturity greater would be the risk of the interest rate. The duration plays a key role as the investment is fixed for some time and investors would not be able to get its money in between.

b. Volatility: - If other things remain stagnant we compare two securities based upon their demand then price would vary.

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