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mezya [45]
3 years ago
13

A stock is priced today at $12.70. Analysts have a consensus view that the stock will be valued at $15.62 next year. The stock w

ill not pay a dividend in the coming year. After a little research, you know that the stock has a beta of 1.00. The risk free rate in the economy is 5.00%, while the market risk premium is 6.00%. If CAPM and the analysts are correct, what price SHOULD the stock be trading at TODAY
Business
1 answer:
Archy [21]3 years ago
3 0

Answer:

The stock should be trading at $14,74 today

Explanation:

In Capital Market Asset Pricing (CAPM) model.   expected return = risk-free rate + beta*(market risk premium - risk-free rate)

=  5% + 1*(6%-5%) = 6%

If Analysts have a consensus view that the stock will be valued at $15.62 next year, then basing on expected return 6%, the stock price today should be

= $15.62%/(1+6%) = $14.74

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