What point will the stock reach an equilibrium

Reference no: EM1316015

The price in the market to day fairly reasonable to buy using CAPM

(CAPM (capital asset pricing model) and Expected Return) A share of stock with a beta of 0.75 now sells for $50. Investors expect the stock to pay a year-end dividend of $2. The Treasury bill rate is 4 percent, and the market risk premium is 7 percent. The stock is perceived to be fairly priced today. Suppose investors actually believe the stock will sell for $54 at year-end. Is the stock a good or bad buy? What will investors do? At what point will the stock reach an "equilibrium" at which it again is perceived as fairly priced?

Reference no: EM1316015

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