Which term describes the return expected by investors from an investment?

The term that best describes the return expected by investors from an investment is the cost of capital. This concept represents the opportunity cost of making a specific investment compared to the returns that could be generated from an alternative investment with a similar risk profile. Essentially, the cost of capital serves as a benchmark that investors use to evaluate the attractiveness of an investment.

When businesses seek financing, they must consider the cost of capital because it reflects the minimum return that investors expect on their investments in order to be satisfied. If a company cannot achieve returns above this threshold, it may not be worth pursuing the investment, as it would not meet the expectations of those providing capital. This understanding helps in effective financial decision-making and is a critical component of capital budgeting and determining project feasibility.

The other options do not directly convey the same meaning. Return on investment focuses specifically on the actual returns earned from a particular investment. Market value pertains to the current value of an asset based on what it would sell for in the market, and risk assessment involves evaluating potential risks that may affect the returns of an investment. None of these terms encapsulate the expectation of returns from an investment as accurately as the cost of capital does.