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A Stock Generates a Perpetual Cash Flow of $7 Per

Question 2

Multiple Choice

A stock generates a perpetual cash flow of $7 per share, per year. The market index has an expected return of 12% and the risk free rate is 5%. If the stock's listed beta is 1.0 and I believe the true beta is 0.75, how much of a premium will I pay for the stock?


A) $9.96
B) $12.26
C) $33.29
D) $41.43

Correct Answer:

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