Question: 7. Capital Asset Pricing Model (CAPM). CAPM and Expected Return. A share of stock with a beta of 1.2 now sells for $100. Investors expect

7. Capital Asset Pricing Model (CAPM). CAPM and Expected Return. A

7. Capital Asset Pricing Model (CAPM). CAPM and Expected Return. A share of stock with a beta of 1.2 now sells for $100. Investors expect the stock to pay a year-end dividend of $5. The T-bill rate is 3%, and the market risk premium is 5%. a. Suppose investors believe the stock will sell for $120 at year-end. Is the stock a good or bad buy? What will investors do? Provide full details of your calculations and explain your answer. b. At what price will the stock reach an "equilibrium" at which it is perceived as fairly priced today? Provide full details of your calculations and explain your

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