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24-10-2022
Business

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A share of stock with a beta of 0. 75 now sells for $50. Investors expect the stock to pay a year-end dividend of $2. The t-bill rate is 4%, and the market risk premium is 7%. Suppose investors believe the stock will sell for $52 at year-end. Calculate the opportunity cost of capital. Is the stock a good or bad buy? what will investors do? at what price will the stock reach an "equilibrium" at which it is perceived as fairly priced today?.

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