A Stock Generates a Perpetual Cash Flow of $6 Per

question 28

Multiple Choice

A stock generates a perpetual cash flow of $6 per share, per year. The market index has an expected return of 10% and the risk free rate is 4%. If the stock's listed beta is 1.0 and I believe the true beta is 1.2, how much is the stock overpriced?

• A) $13.58
• B) $15.88
• C) $33.20
• D) $44.12

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