In the one-period valuation model,an increase in the required return on investments in equity
A)increases the expected sales price of a stock.
B)increases the current price of a stock.
C)reduces the expected sales price of a stock.
D)reduces the current price of a stock.

Question

Quizplus · Accepted Answer

According to the one-period valuation model, an increase in the required return on investments in equity causes the current stock price to decrease. This is because the higher required return reduces the estimated future cash flows, lowering the present value of the stock. Therefore, Choice D, "reduces the current price of a stock," is the best choice.

In the One-Period Valuation Model,an Increase in the Required Return