A share of stock with a beta of .75 now sells for $50. Investors expect the stock

Question:

A share of stock with a beta of .75 now sells for $50. Investors expect the stock to pay a year-end dividend of $2. The T-bill rate is 4%, and the market risk premium is 7%. Suppose investors actually believe the stock will sell for $52 at year-end. Is the stock a good or bad buy? What will investors do? At what point will the stock reach an "equilibrium" at which it again is perceived as fairly priced?

Beta..........................................0.75

Selling Price.............................$50.00

Dividend.................................$2.00

Risk-free rate..........................4.00%

Market risk premium................7.00%

Expected selling price..............$52.00

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...