A share of stock with a beta of .83 now sells for $61. Investors expect the stock
Question # 00319840
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Updated on: 06/21/2016 12:57 AM Due on: 06/21/2016
A share of stock with a beta of .83 now sells for $61. Investors expect the stock to pay a year-end dividend of $3. The T-bill rate is 6%, and the market risk premium is 9%. |
a. | Suppose investors believe the stock will sell for $63 at year-end. Is the stock a good or bad buy? What will investors do? |
The stock is a (Click to select)goodbad buy and the investors (Click to select)will investwill not invest. |
b. | At what price will the stock reach an “equilibrium” at which it is perceived as fairly priced today? (Do not round intermediate calculations. Round your answer to 2 decimal places.) |
Stock price | $ |
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Rating:
5/
Solution: A share of stock with a beta of .83 now sells for $61. Investors expect the stock