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) = Rf + Beta *Market Risk Premium; Expected Return (R) = Dividend Yield + Capital Gains Yield, where dividend yield=D1/PO and capital gains yield = (P1-Po)/PO
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