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Problem 1 2 - 1 6 CAPM and Expected Return ( LO 2 ) A share of stock with a beta of 0 . 6
Problem CAPM and Expected Return LO
A share of stock with a beta of now sells for $ Investors expect the stock to pay a yearend dividend of $ The Tbill rate is and the market risk premium is
a Suppose investors believe the stock will sell for $ at yearend. Calculate the opportunity cost of capital. Is the stock a good or bad buy? What will investors do
b At what price will the stock reach an "equilibrium" at which it is perceived as fairly priced today?
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Suppose investors believe the stock will sell for $ at yearend. Calculate the opportunity cost of capital. Is the stock a good or bad buy? What will investors do
Note: Do not round intermediate calculations. Round your opportunity cost of capital calculation as a percentage rounded to decimal places.
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Opportunity cost of capital
The stock is a
buy and the investors
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