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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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The individual's pay relative to company's average pay for that position.

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A learning organization is one which is typically characterized by creating an enabling environment for growth, training, and development of its employees. This opportunity and incentives help employees to engage in critical and creative thinking, research, and development. Consequently, employees would become more confident, brilliant, intelligent, knowledgeable and professionals in their assigned positions or roles, thus helping the organization to achieve its aim, goals and objectives.

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