A Common Stock Currently Has a Beta of 1

question 70

Multiple Choice

A common stock currently has a beta of 1.3,the risk-free rate is an annual rate of 6 percent,and the market return is an annual rate of 12 percent.The stock is expected to generate per-share benefits of $5.20 during the coming period.A toxic spill results in a lawsuit and potential fines,and the beta of the stock jumps to 1.6.Assuming zero growth the new equilibrium,price of the stock ________.

• A) will be $37.68
• B) will be $43.33
• C) will be $33.33
• D) cannot be determined from the information given

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Definitions:

Coumadin Overdose

An excessive intake of Coumadin (Warfarin), a blood thinner, leading to a high risk of bleeding and requiring immediate medical attention.

INR

International Normalized Ratio, a calculation based on prothrombin time to monitor patients on anticoagulant therapy.

Vitamin K

A fat-soluble vitamin that plays a key role in blood clotting and bone metabolism.

DA Equation

A mathematical equation or formulation that follows specific rules or styles, possibly differentiated algebraically or in the context of differential analyses.