What Will Happen to a Stock That Offers a Lower

question 115

Multiple Choice

What will happen to a stock that offers a lower risk premium than predicted by the CAPM?

• A) Its beta will increase.
• B) Its beta will decrease.
• C) Its price will decrease until yield is increased.
• D) Its price will increase until the yield is reduced.

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Definitions:

Par Value

A nominal value assigned to a share of stock in the charter of the corporation, often used to determine legal capital.

Shares

Units of ownership interest in a corporation or financial asset, giving the shareholder a proportion of the company's profits.

Treasury Stock

Stocks that the issuing corporation has distributed and then bought back, diminishing the number of shares available for trade on the public market.

Market Value

The present cost at which a product or service is available for purchase or sale in an open market.