Log out Go to App
Go to App

Learning Materials

Features

Discover

Chapter 4: Q8DQ (page 437)

Explain the effect of the risk-return trade-off on the market value of the common stock.

Short Answer

Expert verified

The unnecessary risk taken is the main effect of the risk-return trade-off.

Step by step solution

01

Definition of common stock

The common stock is defined as the stock which represents the ownership of a company. Common stockholders also have voting rights.

02

Effect of the risk-return trade-off on the market value of common stock

The main effect of the risk-return trade-off is that unnecessary risk is taken, which is because of the lower valuation of a stock. The low valuation of stock can be increased by matching it with the level of risk and return through the process of risk-return trade-off.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Start your free trial

Over 30 million students worldwide already upgrade their learning with Vaia!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

Your uncle offers you a choice of \(105,000 in 10 years or \)47,000 today. If money is discounted at 9 percent, which should you choose?

If you invest $8,500 per period for the following number of periods, how much would you have? a. 12 years at 10 percent.

Stilley Resources bonds have four years left to maturity. Interest is paid annually, and the bonds have a \(1,000 par value and a coupon rate of 5 percent. If the price of the bond is \)841.51, what is the yield to maturity?

At a growth (interest) rate of 10 percent annually, how long will it take for a sum to double? To triple? Select the year that is closest to the correct answer

Why might investors demand a lower rate of return for an investment in Microsoft as compared to United Airlines?
See all solutions

Recommended explanations on Business Studies Textbooks

Managerial Economics

Read Explanation

Business Case Studies

Read Explanation

Human Resources

Read Explanation

Organizational Behavior

Read Explanation

Organizational Communication

Read Explanation

Business Development

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.

Sign-up for free