Suppose you consider buying a share of stock at a price of $40. The stock is...

Transcribed Image Text:

Suppose you consider buying a share of stock at a price of $40. The stock is expected to pay a dividend of $3 next year and to sell then for $42. The stock risk has been evaluated at = -0.5. c-1. Using the SML, calculate the fair rate of return for a stock with a = -0.5. (Round your answer to 1 decimal place.) Fair rate of return % c-2. Calculate the expected rate of return, using the expected price and dividend for next year. (Round your answer to 2 decimal places.) Expected rate of return % c-3. Is the stock overpriced or underpriced? O Overpriced O Underpriced Suppose you consider buying a share of stock at a price of $40. The stock is expected to pay a dividend of $3 next year and to sell then for $42. The stock risk has been evaluated at = -0.5. c-1. Using the SML, calculate the fair rate of return for a stock with a = -0.5. (Round your answer to 1 decimal place.) Fair rate of return % c-2. Calculate the expected rate of return, using the expected price and dividend for next year. (Round your answer to 2 decimal places.) Expected rate of return % c-3. Is the stock overpriced or underpriced? O Overpriced O Underpriced