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Homework answers / question archive / You are considering acquiring a common stock that you would like to hold for one year
You are considering acquiring a common stock that you would like to hold for one year. The stock does not pay dividends, and you expect to receive $19.60 from the sale of the stock at the end of the year. Assume the risk-free rate is 3%, the stock has a beta of 0.9, and the market risk premium is 10%. According to the CAPM, what should be the price of the stock today? 11.15 21.20 O 17.50 19.00
Stock price today:
= Stock price in 1 year/(1+rate)
= $19.60/(1+3%+0.9×10%)
= $17.50
Hence, correct option is $17.50
