Question: Question # 6 (8 Marks) The following information is given about stock F and the market: Risk free rate is 3% Expected rate of return

Question # 6 (8 Marks)

The following information is given about stock F and the market:

Risk free rate is 3% Expected rate of return on an average stock is 8% Beta coefficient for stock F is 0.8 Current Price of stock F is $38.85 Growth rate is 2% Next expected dividend is $1.75

a) Is the stock price in equilibrium? Explain. (Show all calculations to support your answer).

b) Considering your answer to part a),

What will investors do?

What will occur in the market?

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