Question

Assuming that all other variables remain unchanged, what impact would each of the
following have on stock price?
(a) The firm’s beta increases.
(b) The firm’s required return decreases.
(c) The dividend expected next year decreases.
(d) The rate of growth in dividends is expected to increase.

Answer 1

Assuming that all other variables remain unchanged, each of the following will have such effect on stock price:
(a) The firm’s beta increases - the stock price will increase.
(b) The firm’s required return decreases - the stock price will decrease.
(c) The dividend expected next year decreases - the stock price will decrease.
(d) The rate of growth in dividends is expected to increase - the stock price will increase.