You are considering buying a share of stock at a price of $73. The stock is expected to pay a dividendof $4.75 next year, and your advisory service tells you that you can expect to sell the stock in 1 yearfor $79. The stock's beta is 1.5, r, is 4%, and E[m] = 12%. What is the stock's alpha (abnormalreturn)?O 2.33%-2.33%O 1.27%O 1.00%O-1.27%▷

Answer : Abnormal return : Abnormal return = Required rate of return - return expected to be earned…

Answered: = $4.75 next year, and your advisory…

= $4.75 next year, and your advisory service tells you -$79. The stock's beta is 1.5, r, is 4%, and Elrml - 13 zurn)? 2.33%

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter7: Corporate Valuation And Stock Valuation

Section: Chapter Questions

Problem 16P: Crisp Cookware’s common stock is expected to pay a dividend of $3 a share at the end of this year...

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Question

You are considering buying a share of stock at a price of $73. The stock is expected to pay a dividend
of $4.75 next year, and your advisory service tells you that you can expect to sell the stock in 1 year
for $79. The stock's beta is 1.5, r, is 4%, and E[m] = 12%. What is the stock's alpha (abnormal
return)?
O 2.33%
-2.33%
O 1.27%
O 1.00%
O-1.27%
▷

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