When a bond trades at a discount to par, the yield to maturity on the bond will exceed the required return.
A stock that has a high required rate of return because of its risky nature will usually have a high P/E ratio.
There is a negative correlation between risk and the return investors demand.
Risk premiums are higher for riskier securities, but the risk premium cannot be higher than the required rate of return.
When a bond trades at a discount to par, the yield to maturity on the bond will exceed the required return.
A stock that has a high required rate of return because of its risky nature will usually have a high P/E ratio.
There is a negative correlation between risk and the return investors demand.
Risk premiums are higher for riskier securities, but the risk premium cannot be higher than the required rate of return.