A share of stock sells for $54 today. The beta of the stock is .8, and the expec
ID: 2726381 • Letter: A
Question
A share of stock sells for $54 today. The beta of the stock is .8, and the expected return on the market is 17 percent. The stock is expected to pay a dividend of $1.10 in one year. If the risk-free rate is 5.3 percent, what should the share price be in one year? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Share Price $_________
A share of stock sells for $54 today. The beta of the stock is .8, and the expected return on the market is 17 percent. The stock is expected to pay a dividend of $1.10 in one year. If the risk-free rate is 5.3 percent, what should the share price be in one year? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Share Price $_________
Explanation / Answer
cost of equity (r)=5.3%+0.8*(17%-5.3%)=14.66%
54=1.10/(0.1466-g)
0.1466-g=0.0204
g=12.62%
Share price in one year =54*(1.1262)=60.81
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