Economic theory teaches that differences in market returns must relate to differences in:
A) book value
B) perceived risk
C) price-earnings ratio
D) bankruptcy risk.

Question

Quizplus · Accepted Answer

Economic theory teaches that market returns are influenced by the perceived risk of an investment. Higher perceived risk generally results in higher returns to compensate investors for taking on more risk. Factors that may influence perceived risk include political instability, economic uncertainty, and industry-specific factors such as competition and regulatory changes. Factors such as book value, price-earnings ratio, and bankruptcy risk may influence investment decisions but are not necessarily the primary drivers of market returns.

Economic Theory Teaches That Differences in Market Returns Must Relate