Assume that an investor is offered a choice of a risk-free government bond that is expected to return 3.5% or a high-risk corporate stock.According to one of the principles of finance,what would induce the investor to purchase the corporate stock?
A) a return that is substantially lower than 3.5%
B) cash dividends
C) a return that is substantially higher than 3.5%
D) none of the above

Question

Quizplus · Accepted Answer

The principle of finance that would induce the investor to purchase the high-risk corporate stock is the principle of risk versus return. Since the corporate stock is high-risk, it should have the potential to offer a higher return compared to the risk-free government bond. Therefore, a return that is substantially higher than 3.5% would be the most enticing reason for the investor to choose the corporate stock.

Assume That an Investor Is Offered a Choice of a Risk-Free