Investors anticipate that the stock will trade at $96.21 at the end of the year.
In line with CAPM
Required rate of Return (Ke) = Rm - (E(Rm) - Rf) * Beta
Rf = the risk-free rate.
E(Rm) stands for the expected rate of return on a market portfolio.
Ke = 4% + 1 * (18% - 4%) follows.
= 4% + 14% = 18%
now utilizing Gordon Growth Model
The stock's price is D1/ (Ke- g)
where D1 is the dividend for the next year.
g = Rate of Growth
90 = 10 / (18% - g)
g = 18% - 10/90 = 18% - 11.11% = 6.89%
Price anticipated at the year-end = D2 (Ke- g)
D2 = D1 * (1 + g) = 10 * (1 + 6.89%) = $10.689
Expected Price at the end of the year is equal to 10.689/ (18% - 6.89%), or 10.689/11.11%, or $96.21.
Investors anticipate that the stock will trade at $96.21 at the end of the year.
what is a market portfolio?
The term "market portfolio" refers to a portfolio that includes the weighted total of each item traded on the market, with the required supposition being that these assets are endlessly divisible.
learn more about it market portfolio-brainly.com/question/28005592
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