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11 January, 08:33

Suppose you consider buying a share of stock at a price of $55. The stock is expected to pay a dividend of $6 next year and to sell then for $57. The stock risk has been evaluated at β = - 0.5. c-1. Using the SML, calculate the fair rate of return for a stock with a β = - 0.5.

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  1. 11 January, 09:34
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    12.7%

    Explanation:

    Fair market return=*$7/55=7/55=12.7%

    dividend=$6

    Gain on stock price=$57-$55=$2

    *Total return=$6+$2=$7

    Stock base price=$55
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