What will happen to a stock that offers a lower return than predicted by the CAPM?
A) Its beta will increase.
B) Its beta will decrease.
C) Its market price will decrease causing its yield to increase.
D)Its market price will increase causing its yield to increase.

Question

Quizplus · Accepted Answer

According to the CAPM, the expected return of a stock is proportional to its beta. If a stock offers a lower return than predicted by the CAPM, its market price will decrease causing its yield to increase. This means that investors will demand a higher return on their investment, resulting in a decrease in the stock's market price. Therefore, choice C is the correct answer.

What Will Happen to a Stock That Offers a Lower