Question
The current price of a share of stock in the Down Under Clothing Company of Australia is A$50 and its expected yield over the year
The current price of a share of stock in the Down Under Clothing Company of Australia is A$50 and its expected yield over the year is 0.14. The market risk premium in Australia is 0.08 and the riskless interest rate 0.06. What would happen to the stocks current price if its expected future payout remains constant while the covariance of its rate of return with the market portfolio falls by 50%?
Which of the below options:
- The share price will go up by 3.64%
- The share price will go up by 14%
- The share price will go down by 3.64%
- The share price will not change.
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