If a given investor believes that a stock’s expected return exceeds its required return, then the investor most likely believes that

Question

BlackTom AI · Accepted Answer

When evaluating the statement, we need to connect the idea of expected return versus required return to investment decisions.
Option 1: 'the stock is a good buy.' If an investor believes the expected return is higher than the required return, the stock is providing more return than what is needed given its risk. This creates a favorable expected payoff relative to the required compensation, which typically leads to a buying inclination.
Option 2: 'management is probably not trying to maximize the price per share.' The comparison of expected versus required return is about the stock’s value and return prospects, not a direct statement about management's objectives. This option introduces a separate managerial objective claim that isn’t logically implied by the expected > required return, so it’s misleading.
Option 3: 'the stock should be sold.' If the expected return exceeds the required return, that would generally argue for holding or buying more, not selling, since the investment is undervalued relative to the return required by risk. This makes the assertion opposite to the scenario described.
Option 4: 'dividends are not likely to be declared.' The expectation of a higher return versus required return speaks to pricing and return relative to risk, not to dividend policy specifically. It’s not a necessary implication and could be true or false independent of the comparison between expected and required return.
Option 5: 'the stock is experiencing supernormal growth.' While supernormal growth could influence expected returns, the condition given (expected return > required return) does not by itself imply supernormal growth. It merely indicates favorable valuation; assuming supernormal growth would be an additional detail not required by the premise.
In summary, the core idea is that when the expected return surpasses the required return, the stock is considered attractive or a good buy, while the other statements introduce claims about management objectives, selling, dividends, or growth that are not logically compelled by the given comparison.

If a given investor believes that a stock’s expected return exceeds its required return, then the investor most likely believes that单项选择题

类似问题

Which of the following are reasons that you should care about stock valuation (according to the text)?

If the current risk free-rate is 6%, what should the current price of a stock be if its price and dividend next year are forecast to be $122 and $7, respectively, and its risk premium is 4%.

Assume that your valuations lead to an estimated share price of $39.80. Quizzer’s actual current share price is $37.90. Would you recommend buying or selling shares in Quizzer?

Part 1Compute the price of a share of stock that pays a $5.005.00 per year dividend and that you expect to be able to sell in one year for $3030, assuming you require a 1010% return. The price of the share is $[input]enter your response here . (Round your response to the nearest penny.)

Select the correct alternative regarding stock valuation:

更多留学生实用工具

智能学习助手

风格化写作助手

论文查重助手

文献引用助手

课堂转译助手

课堂笔记助手

Quiz搜索助手

学校历年真题

智能刷题助手

智能匹配练习

希望你的学习变得更简单