If in the opinion of a given investor a stock’s expected return exceeds its required return

If in the opinion of a given investor a stock’s expected return exceeds its required return

Question 26

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1. If in the opinion of a given investor a stock’s expected return exceeds its required return, this suggests that the investor thinks

Answer

the stock is experiencing supernormal growth.

the stock should be sold.

the stock is a good buy.

management is probably not trying to maximize the price per share.

dividends are not likely to be declared.

Question 30

1. If markets are in equilibrium, which of the following conditions will exist?

Answer

Each stock’s expected return should equal its realized return as seen by the marginal investor.

Each stock’s expected return should equal its required return as seen by the marginal investor.

All stocks should have the same expected return as seen by the marginal investor.

The expected and required returns on stocks and bonds should be equal.

 

All stocks should have the same realized return during the coming year.

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