ACCT-311 Lecture 6: acct6
1 Apr 2016
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Correlation the tendency of two variables to move together 20 correlationcoefficient,(rho) astandardizedmeasure of how two random variables covary. A correlation coef- ficient of 1. 0 means that the two variables move up and down in perfect synchronization, while a coefficient of 1. 0 means the variables always move in opposite directions. A correlation coefficient of zero suggests that the two variables are not related to each other; that is, they are independent 20 cost of common stock, rs the return required by the firm"s common shareholders. Thus, the cost of new common equity is higher than that of common equity raised internally by rein- vesting earnings 27 cost of preferred stock, rps the return required by the firm"s preferred shareholders. The cost of preferred stock, rps, is the cost to the firm of issuing new preferred stock. For perpetual preferred, it is the preferred divi- dend, dps, divided by the net issuing price, pn 26.
