The value of a stock may increase if
1) risk is increased
2) risk is decreased
3) investors' required rate of return increases
4) investors' required rate of return decreases
A)1 and 3
B)1 and 4
C)2 and 3
D)2 and 4

Question

​The value of a stock may increase if
1) risk is increased
2) risk is decreased
3) investors' required rate of return increases
4) investors' required rate of return decreases
A)​1 and 3
B)​1 and 4
C)​2 and 3
D)​2 and 4

Quizplus · Accepted Answer

The value of a stock may increase if the investors' required rate of return decreases, which is choice 4. The decrease in the required rate of return signifies that investors are willing to pay more for the stock, increasing its value. On the other hand, an increase in risk, which is choice 1, can lead to a decrease in stock value as investors become more hesitant to invest in the company. Therefore, choice B is incorrect. Finally, choice 2 and 3 are incorrect as a decrease in risk or an increase in required rate of return can lead to a decrease in stock value.

​The Value of a Stock May Increase If

The Value of a Stock May Increase If