Why Do Investors Require a Higher Expected Rate of Return

question 28

Multiple Choice

Why do investors require a higher expected rate of return on common stock than on bonds?

• A)Common stock is a riskier investment than bonds.
• B)Common stock is a lower risk investment than bonds.
• C)Common stock has a shorter maturity than bonds.
• D)Dividends are considered taxable income, but interest is not.

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Definitions:

Second Term

The subsequent period in office for an elected official after successfully being re-elected for the same position.

Military Buildup

The process of expanding and strengthening a country's armed forces through increased spending, recruitment, and development of weapons and technology.

Arms Talks

Negotiations between nations aimed at mutual reduction or control of military weapons and equipment.

Jay Treaty

The Jay Treaty was an agreement made in 1794 between the United States and Great Britain, aimed at settling outstanding issues since the Treaty of Paris in 1783, which had ended the American Revolutionary War, and facilitating ten years of peaceful trade.