In an efficient market, a mutual fund’s required return is the same as the: A) holding period return. B) internal rate of return. C) net asset value return.
A?
B (could be C, but I’m somewhat sure it’s B).
B - IRR?
yep IRR.
B
Your answer: B was correct! The internal rate of return (IRR) is the rate that equates the value of the discounted cash flows to the current price of the security. In an efficient market, where securities are properly priced, the IRR and required return are the same. —req’d return on a mutual fund…I guess. The IRR will always = the discount rate if you hold a mutual fund. I suppose I’m taking it from the wrong angle (I haven’t spent much time on this reading).
interesting. i was thinking that if everthing is efficient, then there won’t be a deviation from the holding period return i.e. no arbitrage opportunity to exploit so the return is what it is. apparently not.