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Llana [10]
3 years ago
11

Themarketpriceofasecurityis$50.Itsexpectedrateofreturnis14%.Therisk-freerateis6%, and the market risk premium is 8.5%. What will

be the market price of the security if its correla- tion coefficient with the market portfolio doubles (and all other variables remain unchanged)? Assume that the stock is expected to pay a constant dividend in perpetuity.
Business
1 answer:
mezya [45]3 years ago
5 0

Answer:

$31.82

Explanation:

market price $50

expected rate of return /Re) = 14%

Div = $50 x 14% = $7

risk free rate (Rf) = 6%

market premium (Rm - Rf) = 8.5%

beta = ?

14% = 6% + (beta x 8.5%)

beta x 8.5% = 14% - 6% = 8%

beta = 8% / 8.5 = 0.941

if beta doubles to 1.882, then Re will be:

Re = 6% + (1.882 x 8.5%) = 22%

new market price of the stocks = $7 / 22% = $31.818 = $31.82

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A fee simple defeasible estate is a type of property that has some conditions attached to it. In case the conditions are not conformed the estate goes back to the grantor.

The holder of such an estate holds it as a fee simple subject to that condition. If the given condition is not met the estate either goes to the original grantor or to a third party.

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<h3>What is Earthquake?</h3>

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