Business High School

"The risk‐free interest rate on one‐year debt is 7 percent and the return on the market is expected to be 13 percent. A stock with a beta of 1.2 pays no dividends over the next year. If it is currently priced at $15.00, what will its price be at the end of the year?"

Answers

Answer 1

Answer:

Price be at the end of the year = $17.13

Explanation:

Using the capital asset pricing model we have,

[tex]E(R) = R{_f} + \beta (R{_m} - R{_f})[/tex]

Where E(R) = Expected return on investment

R[tex]{_f}[tex] = Risk free rate of return = 7%

[tex]\beta[tex] = 1.2

[tex]R{_m}[tex] = Return on the market

Here we have

E(R) = 7% + 1.2(13 - 7)%

= 0.07 + 0.072 = 0.142

= 14.2%

Therefore price of share at year end = $15 + 14.2% = $17.13

That is current cost + expected return on this investment = $17.13

Related Questions

A customer has come to your department with an urgent question. You promised her that you would collect information about her question and answer it by noon. It will take you at least 20 minutes to gather the information needed to provide an answer. It is now 11:50 a.m. Your supervisor just scheduled a 30-minute meeting to start at noon. This meeting is for all employees in your department. You decide to:

Answers

Answer: ask for permission to arrive about 12:15 in the afternoon to the meeting and reply the customer question first.

Explanation:

Most of the actions taken inside a company are directed to customers' satisfaction, they are an important part of all business, so they have to be a priority. In this case, the worker can explain to the supervisor the urgent necessity of replying to the customer and the previous promise that has done of replying by noon. The supervisor may understand the important situation and summarize for the worker the 10 first minutes of the meeting; in this way the worker won't miss the meeting and will keep his commitment with the customer.

Other Questions
Which of the following correctly describes a similarity among followers of Judaism, Christianity, and Islam?A. All observe a holy day of prayer and worship on SundaysB. All believe in the resurrection of Jesus, the messiahC. All have a sacred text that records their beliefs and lawsD. All believe that the food they eat should be kosher Heat in the amount of 100 KJ is transferred directly from a hot reservoir at 1200 K to a cold reservoir at 600K.Calculate the entropy change of the two reservoirs and determine if the increase of entropy principle is satisfied. What did most delegates from the southern states at the constitutional convention believe about slavery a cars fuel efficiency is no less the 45 mpg use F to find the cars fuel efficiency. how do i turn this into an inequality math problem A video game requires at least 4 points to advance. Each solved puzzle is worth two points. Each solved riddle is worth 1 point. If x is the number of solved puzzles and y is the number of solved riddles, which graph represents this scenario? Which equation describes a reduction? Legislative oversight is __________. A. the process by which Congress reviews the actions of governmental departments and agencies B. the process of working out the differences between House and Senate versions of a specific piece of legislation C. the pattern of interaction among a government agency, interest groups, and congressional committees D. none of the above 7hr= how many minutes A ____ is a structure that allows repeated execution of a block of statements.a.loop controlb.loopc.bodyd.Boolean expression Describe the parts of a neuron including the cell body, dendrites, axons, and terminals. What is the solution to the equation 1/4x- 1/8=7/8+1/2x What is substantial agriculture How did technological advancements change manufacturing methods duringthe Industrial Revolution?OA. People went from manufacturing one object at a time by hand tomanufacturing many objects in factories.OB. People went from manufacturing objects for other countries tomanufacturing objects for their own families.OC. People went from manufacturing objects for use by thegovernment to manufacturing objects for use by the people.D. People went from manufacturing objects solely for religiouspurposes to manufacturing objects for all purposes. True of False - use T or F An abstract class can be extended by another abstract class. Raina brought a table for 627 the price was 35%less than the original price what is a thermal energy? Which factor most contributed to the United States' decision to enter WorldWar ?OA. The Allied powers' victory in the Battle of the SommeOB Mexico launching attacks on U.S. territory with the help ofGermanyOa. The Ottoman Empire beginning a campaign of genocide againstthe Armenian peopleD. Germany attacking merchant ships that carried American civilians Old San Juan is typical of cities founded by the Spanish in America in that it has: A. meandering streets and five-point intersections. B. poor neighborhoods and rich neighborhoods side by side. C. a rectilinear grid and central plaza. D. planned warehouse and industrial zones. The Club Auto Parts Company has just recently been organized. It is expected to experience no growth for the next 2 years as it identifies its market and acquires its inventory. However, Club will grow at an annual rate of 5% in the third year and, beginning with the fourth year, should attain a 10% growth rate that it will sustain thereafter. The first dividend (D1) to be paid at the end of the first year is expected to be $0.50 per share. Investors require a 15% rate of return on Club's stock. What will Club's stock price be at the end of the first year ()? Suppose babies born in a large hospital have a mean weight of 4095 grams, and a standard deviation of 569 grams. If 130 babies are sampled at random from the hospital, what is the probability that the mean weight of the sample babies would differ from the population mean by greater than 42 grams? Round your answer to four decimal places.