Question

If investors believe that a stock is not providing a return that sufficiently compensates them for the risk of the stock, they will _________. sell the stock, driving its market price down and its expected return up hold the stock until the return increases to match its risk sell the stock which will drive its expected return even lower buy the stock, driving its market price up and its expected return down

Answer 1

Answer:

sell the stock which will drive it's expected return even lower.

Explanation:

An investor wants to be compensated for the risk undertaken in the form of return. When investors believe that a stock is not providing sufficient return, such stocks would be sold by the investor.

When a stock is not performing well i.e it's current market price goes down, all the investors holding that stock will sell it , leading to it's market price going further down.

Since the market price goes further down, the expected return on such a stock would further decline.