Hard Hat Construction's stock is currently selling at an equilibrium price of $30 per share.The firm has been experiencing a 6 percent annual growth rate.Last year's earnings per share,E₀,were $4.00,and the dividend payout ratio is 40 percent.The risk-free rate is 8 percent,and the market risk premium is 5 percent.If systematic risk (beta)increases by 50 percent,and all other factors remain constant,by how much will the stock price change? (Hint: Use four decimal places in your calculations. ) A) −$7.33 B) +$7.14 C) −$15.00 D) −$15.22 E) +$22.63

Question

Quizplus · Accepted Answer

The stock price will decrease by $7.33. An increase in beta by 50% increases the required rate of return, which decreases the stock price.

Hard Hat Construction's Stock Is Currently Selling at an Equilibrium