In efficient markets a stock that is priced to earn a lower rate of return per amount of risk will
A) likely fall in price.
B) likely increase in price.
C) the rest of the market will adjust to the return/risk ratio of this stock.
D) begin paying dividends.

Question

Quizplus · Accepted Answer

In efficient markets, if a stock is priced to earn a lower rate of return per amount of risk compared to other available investments, it is likely to fall in price. Investors will sell off the stock in favor of better opportunities, leading to a decrease in its price until its return/risk ratio becomes competitive again.

In Efficient Markets a Stock That Is Priced to Earn