Final answer:
The two types of financial returns are the expected rate of return, which is a projection of potential income from an investment, and the actual rate of return, which is the effective income gained after a period. Investors consider these along with risk when deciding where to allocate financial capital.
Step-by-step explanation:
When evaluating different types of financial investments, two key considerations for suppliers of financial capital are the rates of return and the risks involved. The two types of returns are the expected rate of return and the actual rate of return. The expected rate of return is a projection of what an investor can anticipate receiving from an investment, including interest payments, capital gains, or increased profitability. It's typically expressed as a percentage and considered over a period of time. Risk measures the uncertainty of an investment's profitability, taking into account factors such as default risk and interest rate risk. Actual rate of return refers to the effective return on an investment, including all forms of income like capital gains and interest, at the end of a period.
When investments are perceived as high-risk or offer lower returns, suppliers of financial capital tend to transfer their resources to safer or more lucrative opportunities, which affects the supply curves in financial markets. Bank accounts, bonds, stocks, mutual funds, and tangible assets are some of the options available to investors, each varying in rate of return, risk, and liquidity.