Question

Value stocks may provide investors with better returns than growth stocks if:I. Value stocks are out of favor with investors.II. Prices of growth stocks include premiums for overly optimistic growth levels.III. Value stocks are likely to generate positive-earnings surprises.A. I onlyB. II onlyC. I and III onlyD. I, II, and III

Answer 1

D. I, II, and II, All three factors may contribute to value stocks providing better returns

If value stocks are out of favor with investors , they will be selling at a low price therefore the return will be higher in the future.

If price of growth stocks includes premiums then they will be selling at high price multiple therefore lowering the future return and they may also be overvalued.

If value stocks are likely to generate positive earning surprises then they are likely to give good returns.

Step-by-step explanation: