An investor believes Stock M will rise from a current price of $20 per share to a price of $26 per share over the next year. The following information pertains:
Should the investor purchase the stock?
Click on the arrows to vote for the correct answer
A. B. C. D.C
Expected return of Stock M = 8 + 1.7(16 - 8) = 21.6. Estimated return of Stock M = 26 - 20/20 = 30%. Since the estimated return is greater than the expected return, the investor should purchase the stock.