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

Risk free rate is 9%

Expected rate of return on an average stock is 13%

Beta coefficient for stock G is 0.4

Current Price of stock G is $30.00

Growth rate is 5%

Next expected dividend is $1.75

 
Required:

 
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?

Answer rating: 100% (QA)

a To determine if the stock price is in equilibrium we can use the capital asset pricing model CAPM ... View the full answer