Question
Based on the dividend-discount model, what do you think would happen to stock prices if there were a decrease in the perceived riskiness of municipal
Based on the dividend-discount model, what do you think would happen to stock prices if there were a decrease in the perceived riskiness of municipal bonds? If investors perceive municipal bonds are less risky, then the relative riskiness of stocks will (Click to select)risefall. Stocks would become relatively (Click to select)moreless attractive, requiring a (Click to select)smallerlarger risk premium than before. From the dividend-discount model, we can see that a (Click to select)risefall in the risk premium would lead to a (Click to select)fallrise in stock prices.
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