The idea that investors in common stock may expect a lower total return when prices are relatively stable suggests that:
A) investors are irrational.
B) risk premiums may have a normal magnitude.
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

When stock prices are relatively stable, it can imply that risk premiums are at a normal level. This is because when there is less volatility in the market, investors are less likely to demand higher premiums to compensate for the perceived risk. Therefore, it is logical that investors may expect a lower total return during these periods.

The Idea That Investors in Common Stock May Expect a Lower