Problem 9-17 Assume that the risk-free rate of interest is 4% and the expected rate of return on the market is 14%. A share of stock sells for $55 today. It will pay a dividend of $6 per share at the end of the year. Its beta is 1.5. What do investors expect the stock to sell for at the end of the year? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

The stock price at year end is $59.45

Explanation:

Given that:

risk-free rate of interest ()= 4% = 0.04,

expected rate of return on the market = 14% = 0.14

Beta () = 1.5

Dividends (D) = $6

Current price of stock = $55

Therefore, the expected rate of return () is given as:

The price of the stock at the end of the year () is given as:

P₁ = $59.45

Multiply your original principal amount by the Index Ratio. This is your inflation-adjusted principal. Multiply your inflation-adjusted principal by half the stated coupon rate on your security (i.e., 2%). The resulting number is your semi-annual interest payment.The principal value of an inflation-protected bond is adjusted upward or downward based on changes in the Consumer Price Index, which is the formal measure of inflation in the United States. Inflation protected bonds pay a fixed rate of interest twice a year.

Explanation: