An increase in a firm's expected growth rate would cause its required rate of return to
A) increase.
B) decrease.
C) fluctuate less than before.
D) fluctuate more than before.
E) possibly increase,possibly decrease,or possibly remain constant.

Question

Quizplus · Accepted Answer

An increase in a firm's expected growth rate could lead to various outcomes for its required rate of return. Investors might demand a higher return due to perceived increased risk associated with higher growth, or they might accept a lower return due to the expectation of higher future earnings. Additionally, the effect on the required rate of return could be neutral if the market perceives the growth as sustainable without adding significant risk. Thus, the required rate of return could increase, decrease, or remain constant depending on investors' perceptions and market conditions.

An Increase in a Firm's Expected Growth Rate Would Cause