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2. Beta and Stock pricing (10 points} The market price of a security is $40. Its expected rate of return is 13%. The risk free

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2. Beta and Stock pricing (10 points} The market price of a security is $40. Its expected rate of return is 13%. The risk free rate is 7%, and the market risk premium is 8%. What will the market price of the security be if its beta doubles (and the rest is unchanged)? Assume the stock price is expected to pay a dividend of $3 next year (which is year 1; todays is year 0) and then a constant dividend in perpetuity after that (year 2, 3, etc...)

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