Please Help!!!!!! 15. CAPM and Valuation. A share of stock witha beta of .75 now
ID: 2770843 • Letter: P
Question
Please Help!!!!!! 15. CAPM and Valuation. A share of stock witha beta of .75 now sells for $50. Investors expect the stockto pay a year-end dividend of $2. The T-bill rate is 4 percent, andthe market risk premium is 7 percent. If the stock is perceived tobe fairly priced today, what must be investors' expectation of theprice of the stock at the end of the year? Please Help!!!!!! 15. CAPM and Valuation. A share of stock witha beta of .75 now sells for $50. Investors expect the stockto pay a year-end dividend of $2. The T-bill rate is 4 percent, andthe market risk premium is 7 percent. If the stock is perceived tobe fairly priced today, what must be investors' expectation of theprice of the stock at the end of the year? 15. CAPM and Valuation. A share of stock witha beta of .75 now sells for $50. Investors expect the stockto pay a year-end dividend of $2. The T-bill rate is 4 percent, andthe market risk premium is 7 percent. If the stock is perceived tobe fairly priced today, what must be investors' expectation of theprice of the stock at the end of the year?Explanation / Answer
Using CAPM, r = 4%+(0.750*(8%) = 10%growth = 10%-2/50 = 6%Div at the end of year 2 = 2 * (1+6%) = 2.12Stock price = 2.12 / (10% - 6%) = 53