Relationship between price of financial asset and return
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1. What is the relationship between the price of a financial asset and the return that investors require on that asset, holding other factors constant?
2. Describe how you could estimate the required rate of return on a share of preferred stock if you know its market price and its dividend.
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Solution Summary
The relationship between price of financial asset and return to investors is discussed. A description of how you could estimate the required rate of return on a share of preferred stock is given.
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1. What is the relationship between the price of a financial asset and the return that investors require on that asset, holding other factors constant?
Holding an asset's cash flows constant, if investors pay a higher price for the asset, then their return from holding the asset will be lower. In general, asset prices are inversely correlated with returns.
2. Describe how ...
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