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You observe that a stocks price goes up by 45% in a week and try to interpret that using the present value relation. That is,
You observe that a stocks price goes up by 45% in a week and try to interpret that using the present value relation. That is, prices are discounted values of expected future cash flows. Which of the following are potential drivers of this high return? I. Investors revised their cash flow expectations for the company upward upon a positive earnings surprise. II. Investors discount future cash flows from the company at a lower rate as the company has become riskier. III. The stock has become more valuable due to a decrease in risk. A) Only I B) Only III C) I and III D) II and
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