tes Problem 12-16 CAPM and Expected Return (LO2) A share of stock with a beta of 0.79 now sells for $61. Investors expect the stock to pay a year-end dividend of $3. The T-bill rate is 6%, and the market risk premium is 9%. a. Suppose investors believe the stock will sell for $63 at year-end. Calculate the opportunity cost of capital. Is the stock a good or bad buy? What will investors do? (Do not round intermediate calculations. Round your opportunity cost of capital calculation as a percentage rounded to 2 decimal places.) Opportunity cost of capital The stock is a bad buy and the investors % b. At what price will the stock reach an "equilibrium" at which it is perceived as fairly priced today? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Stock price
tes Problem 12-16 CAPM and Expected Return (LO2) A share of stock with a beta of 0.79 now sells for $61. Investors expect the stock to pay a year-end dividend of $3. The T-bill rate is 6%, and the market risk premium is 9%. a. Suppose investors believe the stock will sell for $63 at year-end. Calculate the opportunity cost of capital. Is the stock a good or bad buy? What will investors do? (Do not round intermediate calculations. Round your opportunity cost of capital calculation as a percentage rounded to 2 decimal places.) Opportunity cost of capital The stock is a bad buy and the investors % b. At what price will the stock reach an "equilibrium" at which it is perceived as fairly priced today? (Do not round intermediate calculations. Round your answer to 2 decimal places.) Stock price
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Problem 12-16 CAPM and Expected Return (LO2)
A share of stock with a beta of 0.79 now sells for $61. Investors expect the stock to pay a year-end dividend of $3. The T-bill rate is 6%,
and the market risk premium is 9%.
a. Suppose investors believe the stock will sell for $63 at year-end. Calculate the opportunity cost of capital. Is the stock a good or bad
buy? What will investors do? (Do not round intermediate calculations. Round your opportunity cost of capital calculation as a
percentage rounded to 2 decimal places.)
Opportunity cost of capital
The stock is a
bad
buy and the investors
%
b. At what price will the stock reach an "equilibrium" at which it is perceived as fairly priced today? (Do not round intermediate
calculations. Round your answer to 2 decimal places.)
Stock price
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