Concept explainers
Assume that all investors have the same information and care only about expected return and volatility. If new information arrives about one stock, can this information affect the price and return of other stocks? If so, explain why?
To determine: To respond to the given statement.
Statement: Can the stock prices and stock returns affect if any new information arrives regarding the stock?
Introduction: Expected return is the method of finding the average anticipated probability of several diverse interest rates that are probable on a particular asset. The issues in such persistence comprise of dissimilar market environments that includes the beta of an asset.
Answer to Problem 1P
Answer: Yes, the stock prices and stock returns affect if any new information arrives regarding the stock.
Explanation of Solution
Yes, the stock prices and stock returns affect if any new information arrives regarding the stock.
Following are the reasons that suggest that the stock prices and stock returns affect if any new information arrives regarding the stock:
- If the other stock prices remain constant, the shareholders will prefer to raise the weight of the stock by indicating not to hold the market portfolio.
- As a result of the arrival of new information, it modifies the stock’s appearance.
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Chapter 13 Solutions
Corporate Finance (4th Edition) (Pearson Series in Finance) - Standalone book
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