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Question 6: The stock price of Tonys Corp is $40. The expected return on its stock is 12%. Assume the stock will pay a constant

Question 6:

The stock price of Tonys Corp is $40. The expected return on its stock is 12%. Assume the stock will pay a constant (annual) dividend in perpetuity.

The dividend of the fairly priced stock is = 4.8

Question 7:

The risk-free rate is 3% and the return on the market portfolio is 9%. Assume the beta of Tonys Corp suddenly changes to 1.2.

The expected return on its stock according to CAPM is: 10.2

Following #6 and #7, what should the stock price be after the beta of Tonys Corp has changed?

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