A share of stock with a beta of 0.8 currently sells for $50. Investors expect the stock to pay a year-end dividend of $5. The T-bill rate is 1%, and the market risk premium is 6%. If the stock is perceived to be fairly priced today, what much be investors' expectation of the price of the stock at the end of the year? $ Hint: [CAPM] Expected Return (R) = R₁ + Beta*Market Risk Premium; Expected Return (R) = Dividend Yield + Capital Gains Yield, where dividend yield= D₁/Po and capital gains yield = (P₁-Po)/Po
A share of stock with a beta of 0.8 currently sells for $50. Investors expect the stock to pay a year-end dividend of $5. The T-bill rate is 1%, and the market risk premium is 6%. If the stock is perceived to be fairly priced today, what much be investors' expectation of the price of the stock at the end of the year? $ Hint: [CAPM] Expected Return (R) = R₁ + Beta*Market Risk Premium; Expected Return (R) = Dividend Yield + Capital Gains Yield, where dividend yield= D₁/Po and capital gains yield = (P₁-Po)/Po
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter8: Basic Stock Valuation
Section: Chapter Questions
Problem 8P: A stock is trading at $80 per share. The stock is expected to have a yearend dividend of $4 per...
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![A share of stock with a beta of 0.8 currently sells for $50.
Investors expect the stock to pay a year-end dividend of
$5. The T-bill rate is 1%, and the market risk premium is
6%. If the stock is perceived to be fairly priced today,
what much be investors' expectation of the price of the
stock at the end of the year? $_
Hint:
[CAPM] Expected Return (R) = R₁ + Beta*Market Risk
Premium; Expected Return (R) = Dividend Yield + Capital
Gains Yield, where dividend yield= D₁/P and capital
gains yield = (P₁-Po)/Po](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F8798774b-7f93-4339-b920-0db27c06bb7a%2F11d80b30-a40b-40dd-a606-275079e60866%2F79nafyd_processed.jpeg&w=3840&q=75)
Transcribed Image Text:A share of stock with a beta of 0.8 currently sells for $50.
Investors expect the stock to pay a year-end dividend of
$5. The T-bill rate is 1%, and the market risk premium is
6%. If the stock is perceived to be fairly priced today,
what much be investors' expectation of the price of the
stock at the end of the year? $_
Hint:
[CAPM] Expected Return (R) = R₁ + Beta*Market Risk
Premium; Expected Return (R) = Dividend Yield + Capital
Gains Yield, where dividend yield= D₁/P and capital
gains yield = (P₁-Po)/Po
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