The common stock of Leaning Tower of Pita, Inc., a restaurant chain, will generate the following payoffs to investors next year: State Boom Normal Economy Recession Dividend $5 $2 0 Stock Price $195 $100 0 The company goes out of business if a recession hits. Calculate the expected rate of return and standard deviation of return to Leaning Tower of Pita shareholders. Assume for simplicity that the three possible states of the economy are equally likely. The stock is selling
The common stock of Leaning Tower of Pita, Inc., a restaurant chain, will generate the following payoffs to investors next year: State Boom Normal Economy Recession Dividend $5 $2 0 Stock Price $195 $100 0 The company goes out of business if a recession hits. Calculate the expected rate of return and standard deviation of return to Leaning Tower of Pita shareholders. Assume for simplicity that the three possible states of the economy are equally likely. The stock is selling
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter8: Basic Stock Valuation
Section: Chapter Questions
Problem 15P: Return on Common Stock
You buy a share of The Ludwig Corporation stock for $21.40. You expect it to...
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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.
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