BEC Question

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    Topic
  • #183146
    Topsya
    Member

    The market value of a firm’s outstanding common shares will be higher, everything else equal, if

    A• Investors have a lower required return on equity.

    B• Investors have shorter expected holding periods.

    C• Investors expect lower dividend growth.

    D• Investors have longer expected holding periods.

    The correct answer is A

    WHY????????????

    P.S. thanks

    AUD - 90
    FAR - 83
    BEC - 81
    REG - 80
    ETHICS - 100

Viewing 10 replies - 1 through 10 (of 10 total)
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  • #504947
    Topsya
    Member

    Please? Anyone?

    AUD - 90
    FAR - 83
    BEC - 81
    REG - 80
    ETHICS - 100

    #504997
    Topsya
    Member

    Please? Anyone?

    AUD - 90
    FAR - 83
    BEC - 81
    REG - 80
    ETHICS - 100

    #504949
    Anonymous
    Inactive

    I believe it's because if investors don't require high returns, it makes the stock more attractive to the purchaser. If investors have an appetite for lower returns on investment, it would raise demand for the stock, and thus raise the market value.

    I remember seeing this question in WTB and was confused as well, but that's how I understand it now.

    #504999
    Anonymous
    Inactive

    I believe it's because if investors don't require high returns, it makes the stock more attractive to the purchaser. If investors have an appetite for lower returns on investment, it would raise demand for the stock, and thus raise the market value.

    I remember seeing this question in WTB and was confused as well, but that's how I understand it now.

    #504951
    Anonymous
    Inactive

    *In my second sentence, correct “lower returns on investment” to “lower return on equity”. Aka they require the company to produce less net income over shareholder's equity.

    #505001
    Anonymous
    Inactive

    *In my second sentence, correct “lower returns on investment” to “lower return on equity”. Aka they require the company to produce less net income over shareholder's equity.

    #504953
    Anonymous
    Inactive

    The market value of a firm's outstanding common shares will be higher, everything else equal, if

    A• Investors have a lower required return on equity.

    B• Investors have shorter expected holding periods.

    C• Investors expect lower dividend growth.

    D• Investors have longer expected holding periods.

    You can immediately eliminate B and D because expected holding periods do not factor in to the market value of common shares.

    C is incorrect as it would have the opposite effect, if investors expected lower dividend growth the market value would decline.

    Even if you didn't understand why A was the answer at this point it would get you there, but it is correct because of what was said above, if investors are demanding a lower required ROE then your stock will become more attractive and thus the market value will increase.

    #505003
    Anonymous
    Inactive

    The market value of a firm's outstanding common shares will be higher, everything else equal, if

    A• Investors have a lower required return on equity.

    B• Investors have shorter expected holding periods.

    C• Investors expect lower dividend growth.

    D• Investors have longer expected holding periods.

    You can immediately eliminate B and D because expected holding periods do not factor in to the market value of common shares.

    C is incorrect as it would have the opposite effect, if investors expected lower dividend growth the market value would decline.

    Even if you didn't understand why A was the answer at this point it would get you there, but it is correct because of what was said above, if investors are demanding a lower required ROE then your stock will become more attractive and thus the market value will increase.

    #504955
    Topsya
    Member

    Thanks everyone! Appreciate it!

    AUD - 90
    FAR - 83
    BEC - 81
    REG - 80
    ETHICS - 100

    #505005
    Topsya
    Member

    Thanks everyone! Appreciate it!

    AUD - 90
    FAR - 83
    BEC - 81
    REG - 80
    ETHICS - 100

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