A share of stock with a beta of 0.84 now sells for $69. Investors expect the stock to pay a year-end dividend of $4. The T-bill rate is 3%, and the market risk premium is 7%.
a. Suppose investors believe the stock will sell for $71 at year-end. Calculate the opportunity cost of capital. Is the stock a good or bad buy? What will investors do? (Do not round intermediate calculations. Round your opportunity cost of capital calculation as a whole percentage rounded to 2 decimal places.)
Opportunity Cost of Capital ________%?
b. At what price will the stock reach an “equilibrium” at which it is perceived as fairly priced today? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Stock price-__________________?