in the opinion of a given investor a stock's expected return exceeds its required return, this suggests that the investor thinks
A)the stock is experiencing supernormal growth.
B)the stock should be sold.
C)the stock is a good buy.
D)management is probably not trying to maximize the price per share.
E)dividends are not likely to be declared.

Question

Quizplus · Accepted Answer

If an investor believes that a stock's expected return exceeds its required return, this means that the stock is offering a higher return than what the investor requires to compensate for the risk they are taking. Therefore, the investor would see this stock as undervalued and a good buy opportunity. Option A is incorrect because supernormal growth is not necessarily the only reason for a stock to offer higher returns than required; option B is incorrect because selling a stock would not be the logical action if its expected return is higher than required; option D is not a reasonable conclusion to draw from this scenario; option E is also irrelevant as the question mentions nothing about dividends.

In the Opinion of a Given Investor a Stock's Expected