Problem $12-16$ CAPM and Expected Return $($LO$2)$

A share of stock with a beta of $0\mathrm{.}65$ now sells for $$46.$ Investors expect the stock to pay a year$-$end dividend of $$2.$ The T$-$bill rate is $6\%,$ and the market risk premium is $9\%.$

a$.$ Suppose investors believe the stock will sell for $$48$ at year$-$end. Calculate the opportunity cost of capital. 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?

Complete this question by entering your answers in the tabs below.

Required $A$

Required $B$

Suppose investors believe the stock will sell for $$48$ at year$-$end. Calculate the opportunity cost of capital. Is the stock a good or bad buy? What will investors do$?$

Note: Do not round intermediate calculations. Round your opportunity cost of capital calculation as a percentage rounded to $2$ decimal places.

Show less $A$

Opportunity cost of capital

The stock is a

buy and the investors