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    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 Preview

    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 ...

    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.

    $2.49

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