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    CAPM and Valuation: Expectation of Price

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    A share of stock with a beta of .75 now sells for $50. Investors expect the stock to pay a year-end dividend of $2. The T-bill rate is 4 percent, and the market risk premium is 7 percent. If the stock is perceived to be fairly priced today, what must be investors' expectation of the price of the stock at the end of the year?

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    First calculate the expected growth rate for the stock using the ...

    Solution Summary

    This solution shows step-by-step calculations to determine the required rate on stock using the CAPM method as well as the stock prices at the end of the year.