Question
The market price of a security is $42. Its expected rate of return is 9%. The risk-free rate is 4%, and the market risk premium
The market price of a security is $42. Its expected rate of return is 9%. The risk-free rate is 4%, and the market risk premium is 7%. What will the market price of the security be if its beta doubles (and all other variables remain unchanged)? Assume the stock is expected to pay a constant dividend in perpetuity. (Round your answer to 2 decimal places.)
A. What is the original beta of the security at a market price of $42?
B. What is the new beta after it doubles?
C. What is the new required rate of return for the security given the new beta? %
D. What is the dividend amount that the firm pays? $
F. What would be the new market price of the security after the beta has doubled? $
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