What should be the market price of the stock? $ If the current market price of the stock is $87.00, what should you do? The stock be purchased. If the expected return on the market rises to 11.9 percent and the other variables remain constant, what will be the value of the stock?
Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
The risk-free
- What should be the market price of the stock?
$
- If the current market price of the stock is $87.00, what should you do?
The stock be purchased.
- If the expected return on the market rises to 11.9 percent and the other variables remain constant, what will be the value of the stock?
$
- If the risk-free return rises to 3 percent and the return on the market rises to 12.1 percent, what will be the value of the stock?
$
- If the beta coefficient falls to 1.3 and the other variables remain constant, what will be the value of the stock?
$
- Explain why the stock’s value changes in c through e.
The increase in the return on the market the required return and the value of the stock.
The increase in the risk-free rate and the simultaneous increase in the return on the market cause the value of the stock to .
The decrease in the beta coefficient causes the firm to become risky as measured by beta, which the value of the stock.
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