Question

In: Finance

You are thinking of buying a stock priced at $90 per share. Assume that the​ risk-free...

You are thinking of buying a stock priced at $90 per share. Assume that the​ risk-free rate is about 4.6% and the market risk premium is 6.7%. If you think the stock will rise to $122 per share by the end of the​ year, at which time it will pay a $1.54 ​dividend, what beta would it need to have for this expectation to be consistent with the​ CAPM?

Solutions

Expert Solution

We see that the beta is given as equal to=((122+1.54)/90-1-4.6%)/6.7%
=4.87562


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