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A share of stock with a beta of 0. 75 now sells for $50. Investors expect the stock to pay a year-end dividend of $2. The t-bill rate is 4%, and the market risk premium is 7%. Suppose investors believe the stock will sell for $52 at year-end. Calculate the opportunity cost of capital. Is the stock a good or bad buy? what will investors do? at what price will the stock reach an "equilibrium" at which it is perceived as fairly priced today?.

Respuesta :

PriyaMM

An investor is a person or a group of people who invest money in the hope of someday making a profit. This inclusive definition covers everyone from Wall Street institutions to family members who lend money to one another to startup incubators.

What is an investor, for instance?

  • Whether the real return will be higher, lower, or the same as the needed return (opportunity cost of capital) will determine what the investors will do.
  • You may determine the actual return by utilizing the holding period return, which is;

= (Earnings(Dividends) + (Ending Stock Price - Beginning Stock Price))/Beginning Stock Price

= (2 + (52 - 50))/50

= 4/50

= 8%

  • The CAPM can be used to determine the Opportunity Cost of Capital.

= Risk Free Rate + beta(Market Premium)

= 4% + 0.75(7%)

= 9.25%

  • The stock is a bad buy since the Opportunity Cost of Capital exceeds the Actual Return on the stock. Investors won't buy anything.

To Learn more About investor refer to:

https://brainly.com/question/25311149

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