The idea that investors in a common stock may expect a lower total return if they purchase a stock with limited price volatility rather than one with high price volatility suggests that:
A) investors are irrational.
B) there is a relationship between risk and return.
C) real rates of return will be lower during periods of price stability.
D)stocks should be avoided when inflation is low.

Question

Quizplus · Accepted Answer

The concept of risk and return is a fundamental principle in finance. It suggests that the higher the risk of an investment, the higher the potential return. Investors who choose a stock with limited price volatility may expect a lower total return as it is considered a lower-risk investment. Therefore, option B is the correct answer. Option A is incorrect because the statement does not imply that investors are irrational. Option C is also incorrect as there is no evidence to suggest that real rates of return will be lower during periods of price stability. Option D is also incorrect as it is not related to the concept of risk and return.

The Idea That Investors in a Common Stock May Expect