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Problem 2 Assume that the risk-free rate of interest is 6% and the expected rate of return on the market is 16%. A share of stock sells for $50 today. It will pay a dividend of $6 per share at the end of the year. Its beta is 1.2. What do investors expect the stock to sell for at the end of the year? Expected stock price = $53 Explanation: Since the stock's beta is equal to 1.2. its expected rate of return is: 0,06+ [1.2 % (0.16 - 0.06)] = 18%