Everything else held constant,if the expected return on RST stock declines from 12 to 9 percent and the expected return on XYZ stock declines from 8 to 7 percent,then the expected return of holding RST stock ________ relative to XYZ stock and demand for XYZ stock ________.
A)rises;rises
B)rises;falls
C)falls;rises
D)falls;falls

Question

Quizplus · Accepted Answer

The expected return of RST stock relative to XYZ stock falls because the decline in expected return is larger for RST (from 12% to 9%) than for XYZ (from 8% to 7%). Consequently, the relative attractiveness of XYZ stock increases, leading to a rise in demand for XYZ stock.

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