A Stock Generates a Perpetual Cash Flow of $5 Per

question 58

Multiple Choice

A stock generates a perpetual cash flow of $5 per share, per year. The market index has an expected return of 11% and the risk free rate is 3%. If the stock's listed beta is 0.8 and I believe the true beta is 0.5, how much of a premium will I pay for the stock?

• A) $16.58
• B) $18.24
• C) $53.19
• D) $71.43

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