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Right now the price of Netflix stock is $100, its beta with the market is 2. The expected price next year is $120. The risk
Right now the price of Netflix stock is $100, its beta with the market is 2. The expected price next year is $120. The risk free rate is 2% and the market risk premium is 8%. 1. If Winston (the representative investor) believes CAPM correctly describes the risk return tradeoff, will he be willing to buy Netflix stock at the current price?' a. i. Yes, Winston will buy exactly the amount suppliede ii. Yes, but Winston will demand more than the amount supplied at $1004 ii. No, Winston will not buy Netflix at $100 v. Not enough information b. If CAPM holds and assuming its beta stays constant, at what price will Winston demand Netflix in an amount exactly equal to supply. (hint: what price today would correctly reflect the CAPM risk?)
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