Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A share of stock with a beta of 0 . 8 currently sells for $ 5 0 . Investors expect the stock to pay a

A share of stock with a beta of 0.8 currently sells for $50. Investors expect the stock to pay a year-end dividend of $5. The T-bill rate is 1%, and the market risk premium is 6%. If the stock is perceived to be fairly priced today, what much be investors expectation of the price of the stock at the end of the year? $____________ Hint: [CAPM] Expected Return (R)= Rf + Beta*Market Risk Premium; Expected Return (R)= Dividend Yield + Capital Gains Yield, where dividend yield= D1/P0 and capital gains yield =(P1-P0)/P0

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Introduction To Personal Finance Beginning Your Financial Journey

Authors: Lance Palmer, John E. Grable

2nd Edition

1119797063, 978-1119797067

More Books

Students also viewed these Finance questions