Final answer:
When selling an asset, you typically receive its market value, which is influenced by rate of return, risk, and liquidity. Examples include real estate, which often has moderate return and liquidity but can vary in risk. Stocks usually offer higher returns than bonds or savings accounts but come with increased risk, although high risk doesn't necessarily equate to low return.
Step-by-step explanation:
If you sell an asset, you are most likely to receive the market value for that asset at the time of sale. The market value is the price that the asset would sell for under current market conditions. For instance, if Freda bought a house for $150,000 and it is now worth $250,000, she would expect to receive close to the current value provided there are buyers willing to pay that amount. Similarly, Frank purchased a house for $100,000, with it now valued at $160,000. The capital gain you receive depends on various factors, including the asset's rate of return, associated risks, and liquidity.
Tangible assets like real estate can have moderate returns and moderate to high risk depending on the asset type. Their liquidity is usually low because it can take considerable time and effort to sell such assets and access the cash from capital gains. In contrast, investments such as stocks typically have a higher average return over time than bonds or savings accounts, with stocks carrying more risk but offering higher potential returns. The assumption that high risk always leads to low returns is not necessarily true; while high-risk investments pose the potential for greater loss, they also provide the opportunity for higher returns if successful. Therefore, diversified investment strategies often balance risks and returns.