At what price will the stock reach an equilibrium

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Reference no: EM131583545

A share of stock with a beta of .85 now sells for $58. Investors expect the stock to pay a year-end dividend of $2. The T-bill rate is 4%, and the market risk premium is 7%.

a. Suppose investors believe the stock will sell for $60 at year-end. Is the stock a good or bad buy? What will investors do?

The stock is a

good

bad

buy and the investors

will invest

will not invest

b. 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 $

Reference no: EM131583545

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