Question

Which of the following events (in the marketplace or within the company itself) will decrease the market price of Marvelous Manufacturing's common stock? Future dividend growth for Marvelous is forecast to increase from 6% to 9%. Marvelous has increased its estimate of next year's dividend from $1.60 to $1.75. The market's expectation of future inflation decreases from 7% to 5% The beta on Marvelous’ common stock decreases from 1.4 to 1.2. The risk-free rate of return required of investors increases from 8% to 10%.

Answer 1

Answer:

The beta on Marvelous’ common stock decreases from 1.4 to 1.2

Explanation:

According to the scenario, computation of the given data are as follow:-

As we know that

Expected Return = Market Risk Premium × Beta + Risk Free Rate

If the Beta is decreased, this means that expected return is decreased too, and if the expected return decreases the market value is decreases too.  

According to the analysis, The Beta on marvelous’ common stock decreases from 1.4 to 1.2 is correct option.