Question
Please explain how to solve the following A share of stock with a beta of 0.69 now sells for $50. Investors expect the stock to
Please explain how to solve the following
A share of stock with a beta of 0.69 now sells for $50. Investors expect the stock to pay a year-end dividend of $4. The T-bill rate is 6%, and the market risk premium is 9%.
a. Suppose investors believe the stock will sell for $52 at year-end. Calculate the opportunity cost of capital. Is the stock a good or bad buy? What will investors do? (Do not round intermediate calculations. Round your opportunity cost of capital calculation as a whole percentage rounded to 2 decimal places.)
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.)
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