Everything else held constant,if the expected return on ABC stock rises from 5 to 10 percent and the expected return on CBS stock is unchanged,then the expected return of holding CBS stock ________ relative to ABC stock and the demand for CBS stock ________.
A) rises; rises
B) rises; falls
C) falls; rises
D) falls; falls

Question

Quizplus · Accepted Answer

The expected return of holding CBS stock falls relative to ABC stock because ABC's expected return has increased. Consequently, the demand for CBS stock falls as investors prefer the higher return of ABC stock.

Everything Else Held Constant,if the Expected Return on ABC Stock