Question

Briefly discuss the relationship between the following: (Word limit 50-70 words)

1. Share price and investors required rate of return

2. Share price and divided growth rate

Answer 1

n) If the required  return rises, the stock price will fall, and the other way around. This bodes well: if nothing else changes, the price should be lower for the investor to have the required return. There is a reverse connection between required return and the stock price investors appoint to a stock. b) The prices of the shares change each second in stock markets and this makes it difficult for the specialists to realize the correct price to buy the stocks. Exchange investigators utilize different models to recognize the correct price of the share. One of such strategies depends totally on profits. This strategy says that the correct price of the share is the current estimation of each one of those future profits. In this way, if the profits are higher, one can expect an expansion in the share price as well