A share of stock is now selling for $100. It will pay a dividend of $6 per share at the end of the year. Its beta is 1. What must investors expect the stock to sell for at the end of the year? Assume the risk-free rate is 6% and the expected rate of return on the market is 20%. (Round your answer to 2 decimal places.)
Expected selling price
Homework Answers
Ans $ 30.00
| Required Return = | Risk free Return + (Market Return - Risk free return)* Beta |
| Required Return = | 6% + (20% - 6%) *1 |
| Required Return = | 20.0% |
Expected Selling Price = Dividend / Required Return
= 6 / 20%
= $ 30.00
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