Suppose that three stocks (A,B, and C) and two common risk factors (1 and 2) have...

 

 

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Suppose that three stocks (A,B, and C) and two common risk factors (1 and 2) have the following relationship: Stock A: E(Ra) = (1.4)L1 + (0.9)L2 Stock B: E(Rb) = (0.8)L1 + (0.7)L2 Stock C: E(Rc)=(0.5)L1 + (0.6)L2 If L1 = 6 percent and L2= 4 percent, what should be the price (PO) for stock--A? Assume the expected price (P1) after ONE year for stock-A is 34 and will not pay a dividend in the next year. ANSWER FORMAT: 1234.56; Please write in decimal; do not convert in % Suppose that three stocks (A,B, and C) and two common risk factors (1 and 2) have the following relationship: Stock A: E(Ra) = (1.4)L1 + (0.9)L2 Stock B: E(Rb) = (0.8)L1 + (0.7)L2 Stock C: E(Rc)=(0.5)L1 + (0.6)L2 If L1 = 6 percent and L2= 4 percent, what should be the price (PO) for stock--A? Assume the expected price (P1) after ONE year for stock-A is 34 and will not pay a dividend in the next year. ANSWER FORMAT: 1234.56; Please write in decimal; do not convert in %

Answer rating: 100% (QA)

We can use the Constant Growth Model assuming no growth t... View the full answer