Question
The following information for shares X and Y is available: A. Expected Return Standard Deviation Beta Company X 30% 15% 1.9 Company Y 15% 10%
The following information for shares X and Y is available:
A. | Expected Return | Standard Deviation | Beta |
Company X | 30% | 15% | 1.9 |
Company Y | 15% | 10% | 1.1 |
Covariance (XY) = -2.5%
Market risk premium = 9.09%
Risk free rate = 5%
If all the assumptions pertaining to the Security Market Line hold, if Company X is currently trading at a price of R32.70 on the JSE, what (if anything) would happen to Company X?
a.
Company Xs share price would increase by about R11,35
b.
Company Xs share price and beta would stay constant
c.
Company Xs share price would change by about R44
d.
Company Xs beta would adjust to about 2.75
e.
Company Xs share price would decrease by about R11,35
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