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Memories of the 20072009 financial crisis have made you more risk averse, doubling the risk premium you require to purchase a stock. Suppose that your
Memories of the 20072009 financial crisis have made you more risk averse, doubling the risk premium you require to purchase a stock. Suppose that your risk premium before the crisis was 4 percent and that you had been willing to pay $412 for a stock with a dividend-payment of $10 and expected dividend growth of 3 percent. Using the dividend-discount model, with unchanged risk-free rate, dividend payment, and expected dividend growth, what price (rounded to the nearest dollar) would you now be willing to pay for this stock?
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