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The risk-free rate of return is 2 percent, and the expected return on the market is 8 percent. Stock A has a beta coefficient
The risk-free rate of return is 2 percent, and the expected return on the market is 8 percent. Stock A has a beta coefficient of 1.4, an earnings and dividend growth rate of 8 percent, and a current dividend of $1.60 a share. Do not round intermediate calculations. Round your answers to the nearest cent. $ a. What should be the market price of the stock? b. If the current market price of the stock is $84.00, what should you do? The stock -Select- $ be purchased. c. If the expected return on the market rises to 14.8 percent and the other variables remain constant, what will be the value of the stock? d. If the risk-free return rises to 4.5 percent and the return on the market rises to 15.5 percent, what will be the value of the stock? $ e. If the beta coefficient falls to 1.3 and the other variables remain constant, what will be the value of the stock? $ f. Explain why the stock's value changes in c through e. The increase in the return on the market -Select- the required return and -Select- the value of the stock. The increase in the risk-free rate and the simultaneous increase in the return on the market cause the value of the stock to -Select- The decrease in the beta coefficient causes the firm to become -Select- risky as measured by beta, which -Select- the value of the stock.
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