12-5)

A share of stock with a beta of .70 now sells for $60. Investors expect the stock to pay a year-end dividend of $4. The T-bill rate is 5%, and the market risk premium is 8%.

a.Suppose investors believe the stock will sell for $62 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$