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Explain Why a Low-Priced,low Trading Volume Stock Is More Apt

question 11

Essay

Explain why a low-priced,low trading volume stock is more apt to present limits to arbitrage than is a high-priced,high trading volume stock.


Definitions:

Cost of Capital

The yield a corporation needs to generate from its investment endeavors to keep its market valuation stable and draw in financing.

Hurdle Rate

The minimum rate of return on a project or investment required by a manager or investor to proceed with the project.

Payback Period

The length of time required to recover the cost of an investment.

Economic Life

The estimated period over which an asset is expected to be economically useful to the owner.

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