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The market price of a security is $50. Its expected rate of return is 14%. The risk-free rate is 6%, and the market risk premium
The market price of a security is $50. Its expected rate of return is 14%. The risk-free rate is 6%, and the market risk premium is 8.5%. What will be the market price of the security if its correlation coefficient with the market portfolio doubles (and all other variables remain unchanged)? Assume that the stock is expected to pay a constant dividend in perpetuity. (Hint: P = CF/r) (5 marks)
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