Problem $11-06$

The risk$-$free rate of return is $3$ percent, and the expected return on the market is $7$ percent. Stock A has a beta coefficient of $1\mathrm{.}6,$ an earnings and dividend growth rate of $6$ percent, and a current dividend of $$2\mathrm{.}10$ a share. Do not round intermediate calculations. Round your answers to the nearest cent.

What should be the market price of the stock?

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If the current market price of the stock is $$85\mathrm{.}00,$ what should you do$?$

The stock

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be purchased.

If the expected return on the market rises to $13\mathrm{.}5$ percent and the other variables remain constant, what will be the value of the stock?

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If the risk$-$free return rises to $6$ percent and the return on the market rises to $14\mathrm{.}4$ percent, what will be the value of the stock?

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If the beta coefficient falls to $1\mathrm{.}3$ and the other variables remain constant, what will be the value of the stock?

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Explain why the stock$$s value changes in c through e$.$

The increase in the return on the market

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the required return and

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the value of the stock.

The increase in the risk$-$free rate and the simultaneous increase in the return on the market cause the value of the stock to

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$.$

The decrease in the beta coefficient causes the firm to become

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risky as measured by beta, which

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the value of the stock.