If a Given Investor Believes That a Stock's Expected Return

question 34

Multiple Choice

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

• A) the stock is experiencing supernormal growth.
• B) the stock should be sold.
• C) the stock is a good buy.
• D) management is probably not trying to maximize the price per share.
• E) dividends are not likely to be declared.

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Definitions:

Discount Rate

The interest rate charged to commercial banks and other financial institutions for the loans they take from the Federal Reserve's discount window.

Future Cash Flows

Future cash flows refer to the projected financial gains or expenses a business expects to receive or pay out over a specific period in the future.

Discounted Payback Period

The time required to recover the cost of an investment while considering the time value of money.

Initial Investment

The amount of money used to start an investment project or venture.