A share of stock is now selling for $105. It will pay a dividend of $7 per share

Question

A share of stock is now selling for $105. It will pay a dividend of $7 per share at the end of the year. Its beta is 1. What do investors expect the stock to sell for at the end of the year? Assume the risk-free rate is 7% and the expected rate of return on the market is 16%. (Round your answer to 2 decimal places.)

what is Expected selling price???

A share of stock is now selling for $105. It will pay a dividend of $7 per share at the end of the year. Its beta is 1. What do investors expect the stock to sell for at the end of the year? Assume the risk-free rate is 7% and the expected rate of return on the market is 16%. (Round your answer to 2 decimal places.)

what is Expected selling price???

Explanation / Answer

Ke = Risk Free rate + Beta ( Market rate - Risk Free rate)

= 7% + 1 ( 16% -7%)

= 16%

Price of the stock = Dividend / Ke

= 7/0.16 i.e 43.75

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