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Assume the market price of a new stock that pays a constant dividend in perpetuity is priced at 40, using the dividend cash flow formula
Assume the market price of a new stock that pays a constant dividend in perpetuity is priced at 40, using the dividend cash flow formula and an expected rate of return of 13%. The risk-free rate is 7%, and the market risk premium is 8%. According to the CAPM, what would the new expected rate of return and the market price of the stock be if its beta is increased by a percentage that is equal to the last two digits of YOUR student ID divided by 100, other things being equal? For example, the last two digits of my ID are 90, so the beta increases by 90% in my case. (10 marks)
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