Which of the following statements is the least accurate? a. Security returns are composed of cash returns and capital gains. b. When the shareholder’s required rate of return is higher than ROE, a company can increase the stock price by retaining and reinvesting more. c. The geometric average return is always smaller than or equal to the arithmetic average return. d. When the coupon rate is smaller than the yield to maturity, a bond sells below par (discount).
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.
Which of the following statements is the least accurate?
| a. |
Security returns are composed of cash returns and |
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| b. |
When the shareholder’s required |
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| c. |
The geometric average return is always smaller than or equal to the arithmetic average return. |
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| d. |
When the coupon rate is smaller than the yield to maturity, a bond sells below par (discount). |
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