The Probability Distribution for R_M for the Coming Year Is

question 29

Multiple Choice

The probability distribution for r_M for the coming year is as follows: If r_RF = 6.05% and Stock X has a beta of 2.0, an expected constant growth rate of 7 percent, and D₀ = $2, what market price gives the investor a return consistent with the stock's risk?

• A) $25.00
• B) $37.50
• C) $21.72
• D) $42.38
• E) $56.94

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