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At what price will the stock reach an equilibrium

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Question - A share of stock with a beta of 0.82 now sells for $58. Investors expect the stock to pay a year-end dividend of $2. The T-bill rate is 5%, and the market risk premium is 8%.

Required -

a. Suppose investors believe the stock will sell for $60 at year-end. Calculate the opportunity cost of capital. 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?

Reference no: EM132523117

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