Question

A share of stock with a beta of 0.76 now sells for $51. Investors expect the stock to pay a year-end dividend of

$2. The T-bill rate is 3%, and the market risk premium is 7%.

a. Suppose investors believe the stock will sell for $53 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.)

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