A share of stock with a beta of .75 now sells for $50. Investors expect the stock

Question:

A share of stock with a beta of .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%.

a. Suppose investors believe the stock will sell for $52 at year-end. Is the stock a good or bad buy? What will investors do?

b. At what price will the stock reach an "equilibrium" at which it is perceived as fairly priced today?

Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...