If You Own Stock That Has Increased in Price, It

question 83

Multiple Choice

If you own stock that has increased in price, it would be best to sell it after you have owned it for at least

• A) 6 months and one day.
• B) 12 months and one day.
• C) 18 months and one day.
• D) 24 months and one day.

---

Definitions:

Optimal Level

The most favorable point, amount, or degree of something for a particular situation, which maximizes efficiency or returns.

M&M Proposition II

Part of the Modigliani-Miller theorem on capital structure, stating that the cost of equity increases with higher levels of debt, as a consequence of the increased risk taken by equity holders.

Cost of Equity

The compensation that investors demand for bearing the risk of owning stock, usually reflected by earnings or dividend growth expectations.

Required Rate of Return

The minimum annual percentage earned by an investment that will induce individuals or companies to put money into a particular security or project.