Question

A share of stock with a beta of 0.70 now sells for $60. Investors expect the stock to pay a year-end dividend of $4. The T-bill rate is 5%, and the market risk premium is 8%.

A. At what price will the stock reach an “equilibrium” at which
it is perceived as fairly priced today? **(Do not round
intermediate calculations. Round your answer to 2 decimal
places.)**

**Stock Price: __________**

Answer #1

Dividend next year = $4

Current price= $60

Cost of Equity as per CAPM = Risk free rate + (Beta*market risk
premium)

5% + (0.7*8%)= 10.60%

Current price (P0) formula = (D1+P1)/(1+ke)

60 = (4+P1)/(1+10.60%)

60*1.106= 4+P1

P1= 66.36 -4

P1= 62.36

So stock equilibrium price in year 1 is $**62.36**,
where it will be perceived to be failrly priced.

A share of stock with a beta of 0.81 now sells for $56.
Investors expect the stock to pay a year-end dividend of $4. The
T-bill rate is 4%, and the market risk premium is 7%. If the stock
is perceived to be fairly priced today, what must be investors’
expectation of the price of the stock at the end of the year? (Do
not round intermediate calculations. Round your answer to 2 decimal
places.)

A share of stock with a beta of 0.84 now sells for $59.
Investors expect the stock to pay a year-end dividend of $4. The
T-bill rate is 3%, and the market risk premium is 6%. If the stock
is perceived to be fairly priced today, what must be investors’
expectation of the price of the stock at the end of the year?
(Do not round intermediate calculations. Round your answer
to 2 decimal places.)

3. A share of stock with a beta of 0.69 now sells for $50.
Investors expect the stock to pay a year-end dividend of $4. The
T-bill rate is 6%, and the market risk premium is 9%. a. Suppose
investors believe the stock will sell for $52 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 share of stock with a beta of 0.84 now sells for $69.
Investors expect the stock to pay a year-end dividend of $4. The
T-bill rate is 3%, and the market risk premium is 7%. a. Suppose
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Calculate the opportunity cost of capital. Is the stock a good or
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A share of stock sells for $53 today. The beta of the stock is
0.7 and the expected return on the market is 16 percent. The stock
is expected to pay a dividend of $1.00 in one year. If the
risk-free rate is 5.2 percent, what should the share price be in
one year?

A share of stock sells for $65 today. The beta of the stock is
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expected to pay a dividend of $1.50 in one year. With the risk free
rate of return 3.41%, what will the share price be in one year,
just after the dividend is paid?
Select one:
A. 75.09
B. 72.59
C. 76.09
D. 75.59
E. 74.09

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The risk-free rate is 4.8% and the market risk premium is 5%. The
dividend is expected to grow at some constant rate g, and the stock
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stock A has a beta of 0.5 and investors expect it to return 5%.
on the other hand, stock B has a beta of 1.5 and investors expect
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Crisp Cookware's common stock is expected to pay a dividend of
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stock to sell for at the end of the year? (Do not round
intermediate calculations. Round your answer to 2 decimal
places.)

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