An increase in investors’ required return will cause the value of a common stock to
A. rise.
B. fall.
C. remain unchanged.
D. remain stable or rise slightly.
I need help with this one
To determine the effect of an increase in investors' required return on the value of a common stock, we need to understand the relationship between required return and stock value. The required return is the minimum return an investor expects to receive from an investment in order to compensate for the risk they are taking.
When the required return increases, it means that investors have higher expectations for the return they should receive. This suggests that they require a higher level of compensation for the risk associated with the investment.
In general, higher required returns make an investment less attractive because investors can potentially achieve similar returns or lower risk elsewhere. As a result, the value of the investment decreases.
Therefore, the correct answer is B. A increase in investors' required return will cause the value of a common stock to fall.