A share of stock sells for $47 today. The beta of the stock is 1.2, and the expe
ID: 2726820 • Letter: A
Question
A share of stock sells for $47 today. The beta of the stock is 1.2, and the expected return on the market is 15 percent. The stock is expected to pay a dividend of $1.00 in one year. If the risk-free rate is 4.6 percent, what should the share price be in one year? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
A share of stock sells for $47 today. The beta of the stock is 1.2, and the expected return on the market is 15 percent. The stock is expected to pay a dividend of $1.00 in one year. If the risk-free rate is 4.6 percent, what should the share price be in one year? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Explanation / Answer
Expected return = risk free return + beta* (market return - risk free return)
= 4.6 + 1.2 * (15- 4.6)
= 17.08
Share price in one year = dividend/ cost of equity
= $1/ 0.1708
= $5.85
Related Questions
drjack9650@gmail.com
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.