A security has a beta of 0.8; the riskless rate is 4%, and the expected market risk premium is 6% per year. The dividend for this security next year is anticipated to be $2.00 per share; the dividend is expected to grow at 3% in perpetuity. The stock is currently trading at $38 a share.

If the CAPM is true, is the security in equilibrium?

Answer rating: 100% (QA)

To determine if the security is in equilibrium we need to calculate its expected return using the Ca... View the full answer