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Investment Return Components and Risk Profile
Two investors, Alex and Ben, both achieve a 10% total annual rate of return on their respective portfolios. Alex's return is composed almost entirely of an increase in the market value of the assets. Ben's return is composed almost entirely of regular income payments from his assets, with very little change in their market value. Analyze the potential differences in the nature and risk profile of Alex's and Ben's investment strategies, even though their total returns are identical.
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Introduction to Macroeconomics Course
Ch.6 The financial sector: Debt, money, and financial markets - The Economy 2.0 Macroeconomics @ CORE Econ
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An investor is comparing two different assets, Asset A and Asset B. Over the past year, both assets provided an identical total percentage rate of return of 7%. However, the source of the return differed significantly:
- Asset A's return consisted of a 6% increase in its market price and a 1% income payment.
- Asset B's return consisted of a 1% increase in its market price and a 6% income payment.
Based on this breakdown of their returns, what is the most accurate conclusion to draw about the two assets?
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When decomposing the total percentage rate of return, the component that represents the percentage change in an asset's market price is known as the ____.
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