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Henry is buying a firm with an expected perpetual cash flow of $3,600 but is unsure of its risk. If he thinks the beta of
Henry is buying a firm with an expected perpetual cash flow of $3,600 but is unsure of its risk. If he thinks the beta of the firm is 0.5, when the beta is really 1, how much more will Henry offer for the firm than it is truly worth? Assume the risk-free rate is 3% and the expected rate of return on the market is 12%. A. $90,000 B. $18,000 C. $45,000 D. $10,000
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