Final answer:
The expected rate of return on an asset positively affects its desirability. A higher rate of return makes an asset more desirable because it offers the potential for greater profits. Option a.
Step-by-step explanation:
The expected rate of return on an asset affects its desirability positively(a). A higher rate of return makes an asset more desirable because it offers the potential for greater profits. Investors are more likely to choose an asset with a higher expected rate of return compared to one with a lower expected rate of return.
For example, if Investment A has a higher expected rate of return than Investment B, then investors will prefer Investment A because it offers the potential for higher profits. This shift in preference leads to an increase in demand for Investment A, making it more desirable.
Therefore, the expected rate of return on an asset has a positive effect on its desirability.