A share of stock with a beta of 083 now sells for 61, Ask an Expert

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A share of stock with a beta of 0.83 now sells for $61. Investors expect the stock to pay a year-end dividend of $3. The T-bill rate is 6%, and the market risk premium is 9%.

a. Suppose investors believe the stock will sell for $63 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?

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Financial Management, Finance

Category:- Financial Management
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