Company has 50 000 stocks. Each stock has a market price of 3 dollars and an expected return of 10%. Company has a debt with a market value of 150 000 dollars. The risk-free rate is 4%.

Then: Stock prices fall 50%, but debt stays at same market value. What happens to the expected return of the stock?

Answer rating: 100% (QA)

The expected return of the stock would increase Initially with 50000 stocks priced at 3 each the tot... View the full answer