The expected return on an investment in a property is inversely related to the price you pay for the property fundamentally because:
A) The future cash flows the property can generate are independent of the price you pay for the property today.
B) The return must include a risk premium.
C) Inflation must be subtracted out.
D) The investor faces a budget constraint.

Question

Quizplus · Accepted Answer

The expected return on an investment is fundamentally determined by the future cash flows it can generate, which are not affected by the purchase price. A lower purchase price relative to these future cash flows results in a higher expected return, and vice versa, hence the inverse relationship.

The Expected Return on an Investment in a Property Is