A Stock That Has a High Required Rate of Return

question 14

True/False

A stock that has a high required rate of return because of its risky nature will usually have a high P/E ratio.
Per Formula 10-8, a higher K lowers stock price, resulting in a lower P/E ratio.

---

Definitions:

Money Supply

The total amount of money available in an economy at a specific time, including cash and various types of deposits.

Government Securities

Financial instruments issued by the government to finance its expenditures, offering a return to the investors.

Banking System

The network of institutions that accept deposits, offer loans, and provide a variety of financial services to their customers, including savings and checking accounts.

Paper Money

Currency in the form of paper notes, issued by the government or central bank, representing a claim on the issuing country's government.