The Valuation Principle states that the value of a stock is equal to the present value​ (PV) of both the dividends and future sale price of that stock which the investor will receive.   True   False

Q: Explain the definition of stock with a par value and no par value! 2. Explain the definition of…

A: Stock with a par value A stock with a par value is the price of the stock. The motive behind…

Q: Which one of the following statements related to capital gains is correct? Multiple Choice O O O O…

A: The capital gain of an investment is the percentage change in the value of the investment, whether…

Q: Why is the return associated with common stock referred to as a residual claim? Contrast this kind…

A: Common stock holders are the owners of the business. Profits earned by the company will be the…

Q: A stock's capital gains are equal to its dividend divided by the stock price. OA. True OB. False

A: The required rate of return on a stock measures the rate of return desired by the investors in the…

Q: A class of Efficient Market Hypothesis that implies all public information is calculated into a…

A: Efficient Market Hypothesis is the market theory which depicts that market is generally efficient…

Q: In theory, only systematic risk matters for the required return of a stock. Why does non-systematic…

A: Systematic risk refers to those which impacts the whole market rather than on particular stock…

Q: There is a --- impact of earnings on stock prices O a. Deductive O b. Positive O c. Normative O d.…

A: Earnings, also known as net income or profit, represent the amount of money a company has left over…

Q: Generally the smaller the value of a stock transaction, the higher the percentage commission charged…

A: False. In general, the percentage commission charged on a stock transaction tends to decrease as the…

Q: The expected return on a stock is called the __ from the investor's perspective, and the __ from the…

A: The expected return for the stock is an important concept. To calculate the expected return for the…

Q: he best answer with respect to a stock's "alpha"? (In a CAPM world) Group of answer choices The…

A: Alpha of the stock or portfolio is risk adjusted performance given by the portfolio and how much…

Q: For investors, the function of secondary markets is to provide marketability for the shares of…

A: Secondary market is a type of market where investors buy and sell securities or assets from other…

Q: When treasury stock is purchased for more par value of the stock and the cost method is used to…

A: Hi student Since there are multiple questions, we will answer only first question.

Q: When treasury stock is sold below cost, the Paid-in Capital, Treasury Stock account is debited for…

A: Treasury stock refers to previously issued stock that the issuing business buys back from…

Q: What is a deal (and acquisition) where the buyer's stock fell and the target's stock rose?

A: Acquisition - is the purchase of one company by the another. Example: Purchase of Time Warner by AT…

Q: Mike invested $4040 for 3 years and earned $410. What interest rate was this invested at?

A: Investments are the processes in which individuals and investors make investments or save their…

Q: Fill in the blanks: Stock returns can be explained by the stock's and the stock's A. beta; market…

A: stock return cam be calculated using Capital asset pricing model or dividend discount model.

Q: When calculating a fair value for a stock you are considering buying you should consider all the…

A: The correct answer to the question is "How long you expect to keep it".The duration of the…

Q: A stock with a dividend of $0 must have a value that is less than a stock with a dividend of $2.…

A: The dividends refer to the bonus return that the company provides to its shareholders. It is used as…

Q: An underpriced stock provides an expected return which is _______________ the appropriate required…

A: In Assets pricing model the gives the required rate based on risk involved in the stock and stocks…

Q: What is a capital gain? O The total amount of return expected from a stock investment. O The present…

A: A capital gain is the profit that an investor realizes when they sell an asset, such as a stock, for…

Q: short seller anticipates the stock price will __________, so that the share can be purchased later…

A: In case of short selling, shares are short sold with the anticipation of share price falling and…

Q: How do you determine if a stock is over-valued? What does that mean? If a willing buyer and a…

A: Stock is said to be over-valued when the market price is higher than the intrinsic value of the…

Q: Discuss the importance of market efficiency and explain why some markets are more efficient than…

A: Why Are Some Markets More Efficient than Others?1. Liquidity: More liquid markets are typically more…

Q: Earnings per share is a factor used by the stock market to determine stock prices. Select one: True…

A: There are many methods to determine the stock price of a share. Earnings per shares gives the dollar…

Q: Describe two conditions which will determine whether or not a stock is in equilibrium. Can either of…

A: Equilibrium refers to a state of rest or a situation where demand is equal to supply. At point of…

Q: Which one of the following is an example of mental accounting? Multiple Choice associating a…

A: The term "mental accounting" describes the various valuations that individuals assign to the same…

Q: Which of the following statements regarding the dividend discount model f computing stock prices…

A: According to the Gordon’s Model, the market value of the share is equal to the present value of…

Q: alue of a stock is less than the current market price, I should ________________ the stock since it…

A: In the stock market prices of stocks are changing and are not fixed and sometimes go up and…

Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.