Stock a Has a Current Price of $25, a Beta

question 93

Essay

Stock A has a current price of $25, a beta of 1.25, and a dividend yield of 6%. If the Treasury bill yield is 5% and the market portfolio is expected to return 14%, what should stock A sell for at the end of an investor's 2-year investment horizon?

---

Definitions:

Contribution Margin Ratio

A financial metric that represents the portion of sales revenue that is not consumed by variable costs and can contribute to covering fixed costs.

Break-Even Point

The point at which total costs equal total revenue, resulting in no profit but also no loss.

Mixed Costs

Expenses that contain both variable and fixed cost elements, changing in total with the level of activity but not in direct proportion.

Direct Materials

Raw materials that are directly traceable and integral to the finished product in the manufacturing process.