What Can Be Expected to Happen When Stocks Having the Same

question 78

Multiple Choice

What can be expected to happen when stocks having the same expected risk do not have the same expected return?

• A) At least one of the stocks becomes temporarily mispriced.
• B) This is a common occurrence indicating that one stock has more PVGO.
• C) This cannot happen if the shares are traded in an auction market.
• D) The expected risk levels will change until the expected returns are equal.

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Definitions:

Bond Interest Expense

Bond interest expense is the cost incurred by an issuer of bonds due to periodic interest payments made to bondholders.

Carrying Amount

The value at which an asset is recognized on the balance sheet after deducting any accumulated depreciation and impairment charges.

Bonds Payable

Bonds payable are long-term liabilities that represent funds borrowed by a company from investors, to be repaid with interest at a future date.

Free Cash Flow

The amount of cash a company generates after accounting for cash outflows to support operations and maintain its capital assets, indicative of financial health.