Answer to Question #58033 in Finance for abdiaziz

Question

A lawsuit has been filed against the company by a competitor, and the potential loss
has increased risk, which is reflected in the company’s beta, increasing it to 1.6. What
is the estimated price of the stock following the filing of the lawsuit.

Answer 1

If a lawsuit has been filed against the company and the risk increased, which is supported with the fact, that beta equals 1.6, then the estimated price of the stock will fall, because now the purchase of the company's stocks is more risky than before filling the lawsuit.