Exxon Mobil stock currently sells at $33.68 a share. The stockholders expect to get a dividend...

Exxon Mobil stock currently sells at $33.68 a share. The stockholders expect to get a dividend of $3 next year, and they expect that the dividend will grow at the rate of 3.5% per annum. The expected return on the market is 5% and the riskless rate is 3%. This morning Exxon announced that it has lost a legal battle with an adversary, and in response to the news, the stock went down to $30 a share. Find the beta of the stock after the announcement.

Solutions

Expert Solution

Required Rate of stock after new stock=Dividend Next year/New Price + growth =3/30+3.5% =13.5%
Beta of Stock after announcement =(Required Rate of stock-Risk Free rate)/(Market Return-Risk Free Rate) =(13.5%-3%)/(5%-3%) =5.25

jeff jeffy answered 2 years ago

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