A Common Stock Currently Has a Beta of 1

question 64

Multiple Choice

A common stock currently has a beta of 1.7, the risk-free rate is 7 percent annually, and the market return is 12 percent annually. The stock is expected to generate per-share benefits of $6.70 during the coming period. A pending lawsuit has just been dismissed and the beta of the stock drops to1.4. The new equilibrium price of the stock__________ .

• A) will be $47.86
• B) will be $55.83
• C) will be $43.23
• D) cannot be determined from the information given

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Definitions:

Producer Surplus

The difference between the amount a producer is willing to accept for a good or service versus what they actually receive in the market.

Wisconsin Milk Market

Refers specifically to the dairy industry and marketplace within the state of Wisconsin, known for its significant contribution to the United States' milk production.

Total Producer Surplus

The total benefit that producers receive from selling a good or service, measured as the difference between the market price and the minimum price producers are willing to accept.

Caitlin's Producer Surplus

The difference between what a producer (in this case, Caitlin) actually receives for selling a good and the minimum they would be willing to accept.