Final answer:
Mary Ann is interested in the investment value, which reflects the potential rate of return considering opportunity costs and the risk premium. High-risk investments can potentially lead to high returns, but they also come with a greater risk of loss. To calculate returns accurately, investors consider many factors, including the comparison of various investment types like stocks, bonds, and real estate. The correct option is b. Investment value
Step-by-step explanation:
Mary Ann is interested in finding the potential rate of return on her investment. In the context of financial investments, the relevant value she is seeking would be the investment value. This value reflects what an investor is willing to pay based on their particular requirements, expectations of the future, and the level of risk they are willing to accept. To determine the potential rate of return, investors often consider the opportunity cost of investing capital and may include a risk premium if the investment is perceived to be more risky. For instance, in a hypothetical situation where the appropriate interest rate to value future payments is 15%, this percentage would represent the expected annual yield on the investment. This yield takes into account other available financial investment opportunities and any additional risk associated with this specific investment.
Mary Ann might also analyze various types of investments like stocks, bonds, or real estate to determine which has the highest potential for returns. For example, if Freda has purchased a house for $150,000 in cash and the current market value is $250,000, her investment has significantly appreciated, which represents a high potential return. Conversely, high-risk investments do not always correlate to low returns. In fact, high risk can potentially lead to high returns as well; however, the potential for loss is also greater.
Understanding these concepts assists investors in making informed decisions about where to allocate their resources to optimize their investment strategy and achieve their financial goals.