The expected return on an investment includes compensation for both the time value of money and the risks assumed.

Question

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The expected return on an investment takes into account the time value of money as well as the risks involved in the investment. The time value of money refers to the idea that a dollar today is worth more than a dollar in the future due to the potential to earn interest or returns on that dollar if it is invested or saved. Investors demand compensation for the risks they take on with an investment, such as the possibility of losing money, in the form of a higher expected return.

The Expected Return on an Investment Includes Compensation for Both