Suppose a Stock Has a Lower Expected Rate of Return

question 31

Multiple Choice

Suppose a stock has a lower expected rate of return than a bank account. Then

• A)there will be an excess supply of the stock and its price will rise.
• B)there will be an excess supply of the stock and its price will fall.
• C)there will be an excess demand for the stock and its price will rise.
• D)individuals will choose indifferently between the stock and the bank account.
• E)risk-averse individuals will prefer the stock.

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Definitions:

Ending Inventory

Ending inventory is the total value of goods available for sale at the end of an accounting period, calculated as beginning inventory plus purchases minus cost of goods sold.

Current Assets

Items of value that are likely to be cashed in, sold off, or used up within a twelve-month period or during the standard operational cycle of a company.

Gross Profit

The financial metric representing the difference between revenues and the cost of goods sold, indicating the basic profitability of a company's core operations.

Operating Expenses

Costs associated with running a business's day-to-day operations, excluding costs related to producing goods or services.