Question # 6

The following information is given about stock F and the market:\

Risk free rate is 3%

Expected rate of return on an average stock is 8%

Beta coefficient for stock F is 0.8

Current Price of stock F is $38.85

Growth rate is 2%

Next expected dividend is $1.75\

a) Is the stock price in equilibrium? Explain. (Show all calculations to support your answer).

b) Considering your answer to part a),

What will investors do?

What will occur in the market?