If a given investor believes that a stock's expected return exceeds its required return,then the investor most likely believes that
A) the stock is experiencing supernormal growth.
B) the stock should be sold.
C) the stock is a good buy.
D) management is probably not trying to maximize the price per share.
E) dividends are not likely to be declared.

Question

Quizplus · Accepted Answer

If an investor believes that a stock's expected return exceeds its required return, it means that the stock is undervalued and has potential for growth, making it a good buy. Supernormal growth (A) is not necessarily implied and selling the stock (B) would not make sense if the expected return exceeds the required return. There is no indication that management is not maximizing the price per share (D) or that dividends are not likely to be declared (E).

If a Given Investor Believes That a Stock's Expected Return