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Analysis of Investment Return Components
Two investors, Alex and Ben, each invest $10,000 for one year.
- Alex invests in an asset that pays no income. At the end of the year, he sells the asset for $11,000.
- Ben invests in a different asset that pays $1,000 in income during the year. At the end of the year, its market price is unchanged, and he sells it for $10,000.
Both investors achieve the same total return. Analyze the composition of each investor's return. Based on your analysis, which investment's success is more reliant on favorable changes in the asset's market price? Justify your reasoning.
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Analysis of Investment Return Components