An increase in a firm's risk will always result in a higher share price since a stockholder must be compensated for the greater risk.

Name: An increase in a firm's risk will always result in a higher share price since a stockholder must be compensated for the greater risk.
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Question

Quizplus · Accepted Answer

An increase in a firm's risk may actually result in a lower share price as investors may be less willing to invest due to the increased risk. Therefore, there is no direct relationship between a firm's risk and its share price.

An Increase in a Firm's Risk Will Always Result in a Higher