Question

why do investors require a higher expected rate of return on common stock than on bonds? group of answer choices common stock is a lower risk investment than bonds. common stock is a riskier investment than bonds. dividends are considered taxable income, but interest is not. common stocks are inherently less riskier than bonds. investors expect not to earn an additional return. common stock has a shorter maturity than bonds.

Answer 1

Investors require a higher expected rate of return on common stock than on bonds because common stock is a riskier investment than bonds. The higher average return compensates for the higher degree of risk in stocks.

Step-by-step explanation:

Investors require a higher expected rate of return on common stock than on bonds because common stock is a riskier investment than bonds. Stocks have the potential for higher returns, but they also come with a higher degree of risk. On the other hand, bonds have a lower risk compared to stocks and therefore offer a lower expected rate of return. The higher average return compensates for the higher degree of risk in stocks, which is why investors demand a higher expected rate of return for common stock.