Consider buying a share of stock at price

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Reference no: EM13877863

Suppose you consider buying a share of stock at a price of $55. The stock is expected to pay a dividend of $6 next year and to sell then for $57. The stock risk has been evaluated at β = 0.5.

a) Using the SML, calculate the fair rate of return for a stock with a β = 0.5

b) Calculate your expected rate of return for the stock with a β = 0.5, using the expected price and dividend for next year

c) Is the stock overpriced or underpriced?

Reference no: EM13877863

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