Which of the following statements concerning the required rate of return on stocks is true?

Question

Quizplus · Accepted Answer

According to the risk-return trade-off, investors require higher returns on investments with higher risks. Therefore, the higher the risk of a stock, the higher the required return. Option A is incorrect as the required rate of return is not directly related to the value of the stock. Option B is incorrect as reducing risk does not necessarily lead to a decrease in the required return. Option C is incorrect as preferred stock is generally considered less risky than common stock, so preferred stock has a lower required return than common stock.

Which of the Following Statements Concerning the Required Rate of Return