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


Related Solutions

8.3 Assume that you are thinking of buying a default-free bond. Specifically, you’re thinking of buying...
8.3 Assume that you are thinking of buying a default-free bond. Specifically, you’re thinking of buying a bond issued by Risklessco, a company that is considered default-free by all major bond rating firms. You will select one of the following three bonds, which are identical except for the special features listed. Bond Face Value Maturity Coupon rate (paid annually) Yield to Maturity* Special features Price A 1000 20 years 5.5% 5% None ? B 1000 20 years 5.5% 5% Callable...
A stock is currently priced at $37.00. The risk free rate is 5% per annum with...
A stock is currently priced at $37.00. The risk free rate is 5% per annum with continuous compounding. In 7 months, its price will be either $42.18 or $31.82. Using the binomial tree model, compute the price of a 7 month bear spread made of European puts with strike prices $41.00 and $45.00.
I am considering buying a preferred stock for $90 per share. The stock has an annual...
I am considering buying a preferred stock for $90 per share. The stock has an annual dividend of $16 and I expect to be able to sell it for its $100 per share face value in three years. What is the required rate of return of the stock?
You are looking at a stock priced at $60 per share that you expect to increase...
You are looking at a stock priced at $60 per share that you expect to increase in value over the next year. A call option on this stock with exercise price = $60 and a maturity of one year is selling for $6. With $6,000 to invest, you are considering three alternatives:             i.   Invest all $6,000 in the stock             ii. Invest all $6,000 in options iii. Buy 200 options and invest the remaining funds in a money market...
You are currently thinking about investing in a stock valued at $24 per share. The stock...
You are currently thinking about investing in a stock valued at $24 per share. The stock recently paid a dividend of $2.20 and its dividend is expected to grow at a rate of 4 percent for the foreseeable future. You normally require a return of 12 percent on stocks of similar risk. Is the stock overpriced, underpriced, or correctly priced? (Round answer to 2 decimal places, e.g. 52.75.) Current value of stock $ The stock is underpriced, correctly priced, overpriced...
You are bullish on Telecom stock. The current market price is $90 per share, and you...
You are bullish on Telecom stock. The current market price is $90 per share, and you have $13,500 of your own to invest. You borrow an additional $13,500 from your broker at an interest rate of 7.8% per year and invest $27,000 in the stock. What will be your rate of return if the price of the stock goes up by 10% during the next year? (Ignore the expected dividend.) Please explain
Consider a stock priced at $30 with a standard deviation of 0.3. The risk-free rate is...
Consider a stock priced at $30 with a standard deviation of 0.3. The risk-free rate is 0.05. There are put and call options available at exercise prices of 30 and a time to expiration of six months. The calls are priced at $2.89 and the puts cost $2.15. There are no dividends on the stock and the options are European.    What is the profit from the transaction from a finance perspective (adjusting for the TVM)? $7.00 ? $4.11 ?...
A stock was priced at $150 per share at the end of 1999. The following table...
A stock was priced at $150 per share at the end of 1999. The following table shows dividends per share paid during each year and the price of the stock at the end of the year for the following four years: year divedends paid during year stock price at end of year 2000 $3.00 $125 2001 $3.00 $150 2002 $3.50 $155 2003 $4.00$200 For each year from 2000 to 2003, calculate the dividend yield, the capital-gains yield, and the total...
A stock is currently priced at $40. The risk-free rate of interest is 8% p.a. compounded...
A stock is currently priced at $40. The risk-free rate of interest is 8% p.a. compounded continuously and an 18-month maturity forward contract on the stock is currently traded in the market at $38. You suspect an arbitrage opportunity exists. Which one of the following transactions do you need to undertake at time t = 0 to arbitrage based on the given information? a)Long the forward, borrow money and buy the share b)Short the forward, short-sell the share and invest...
Assume that stock J is priced at 94 shares and pays a dividend of 0.7/ share....
Assume that stock J is priced at 94 shares and pays a dividend of 0.7/ share. An investor the stock at margin 50% and borrowing the remainder from the broker at 10%.If after one year, the stock is sold at a price of $132 share, what is the return to the investment.
ADVERTISEMENT
ADVERTISEMENT
ADVERTISEMENT