Which of the following is/are true about a firm's stock?
I. A decrease in the beta of a stock will raise its price.
II. An increase in the variance of a stock will raise its price.
III. An increase in the market's expected return will raise its price.
IV. An increase in the risk aversion of investors will raise its price.
Click on the arrows to vote for the correct answer
A. B. C. D. E. F. G.G
A decrease in the beta of a stock decreases its expected return, causing its price to rise. On the other hand, an increase in the market's expected return or an increase in risk aversion raises the expected return on the stock, decreasing its price. Finally, an increase in the variance of the stock does not necessarily change its expected return. Only if the systematic component of the stock's variance changes will the expected return change, causing a price change.