A stock's price will fall if there is
A)a decrease in perceived risk.
B)an increase in the required rate of return.
C)an increase in the future sales price.
D)current dividends are high.

Question

Quizplus · Accepted Answer

According to the capital asset pricing model, a stock's price is inversely related to the required rate of return. As the required rate of return increases, the present value of the expected future cash flows from the stock decreases, resulting in a lower stock price. A decrease in perceived risk (choice A) would actually increase the stock's price, while an increase in future sales price (choice C) would have no effect on the current stock price. High current dividends (choice D) could potentially increase the stock's price, depending on the investor's preference for dividends, but it is not a guaranteed effect.

A Stock's Price Will Fall If There Is