(Answered) A share of stock with a beta of 67 now sells for 51

Management Studies

A share of stock with a beta of .67 now sells for $51. Investors expect the stock to pay a year-end dividend of $3. The T-bill rate is 4%, and the market risk premium is 9%.

a. Suppose investors believe the stock will sell for $53 at year-end. 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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Business Management, Management Studies

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