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A stock has a beta of 1.1, the riskless rate is 0.04 and the market premium is 0.1. The stock will return a constant $2
- A stock has a beta of 1.1, the riskless rate is 0.04 and the market premium is 0.1. The stock will return a constant $2 as dividend in perpetuity. What is the price of the stock? Note: Like the riskless rate the market premium is the actual number rather than a %.
b. You are trying to calculate the beta for a stock by using data for the last 30 years. You find that the covariance of the stock and market returns per month is 0.000007 (this is a number, not a percentage), and the standard deviation of market returns per month is 0.0032 (this is a number, not a percentage). What is the beta of the stock?
c. A stock with a beta of 2.2 has an expected rate of return of 15.5%. The risk-less rate in the market is 4%. What is the market premium (market rate of return - risk-less rate)? Assume CAPM is true.
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