If enough investors decide to purchase shares they are likely to drive up share prices thereby causing ________ and ________.
A)expected returns to fall; risk premiums to fall
B)expected returns to rise; risk premiums to fall
C)expected returns to rise; risk premiums to rise
D)expected returns to fall; risk premiums to rise

Question

Quizplus · Accepted Answer

When share prices rise due to increased demand, the expected returns fall because the price paid for the same future cash flows is higher. Risk premiums fall as the perceived risk decreases with higher demand and price stability.

If Enough Investors Decide to Purchase Shares They Are Likely