The Idea That Investors in a Common Stock May Expect

question 58

Multiple Choice

The idea that investors in a common stock may expect a lower total return if they purchase a stock with limited price volatility rather than one with high price volatility suggests that:

• A) investors are irrational.
• B) there is a relationship between risk and return.
• C) real rates of return will be lower during periods of price stability.
• D)stocks should be avoided when inflation is low.

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Definitions:

Income Effect

Refers to the change in an individual's or economy's income and how that change will affect the quantity demanded of a good or service.

Tax Rate

The rate at which taxes are applied to an individual or a corporation’s income.

Consumption Tax

A tax on the purchase of goods and services, levied at the point of sale.

Income Tax

A tax levied by governments on the income generated by businesses and individuals within their jurisdiction.