New Information That Might Lead to a Decrease in a Stock's

question 54

Multiple Choice

New information that might lead to a decrease in a stock's price might be

• A)an expected decrease in the level of future dividends.
• B)a decrease in the required rate of return.
• C)an expected increase in the dividend growth rate.
• D)an expected increase in the future sales price.

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Definitions:

Diversification

The process of spreading investment risks by acquiring a wide range of assets within a portfolio.

Expected Gain

A calculation or forecast regarding the potential benefits or profits that could be achieved in a specific situation or from a particular action.

Adverse Selection

A situation in insurance and finance where those most likely to produce negative outcomes are more inclined to select into or engage with a service, typically leading to higher costs for insurers or lenders.

Moral Hazard

The situation in which one party takes additional risks because they know they will not bear the full consequences of their actions.