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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
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
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