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Question 24 10 points Save Answer Suppose you plan to buy a stock with a beta of 1.5, you expect the stock to pay you a divid

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Answer #1

Required Rate = Risk-free rate + [Beta * (Expected Market Return - Risk-free rate)]

= 5% + [1.5 * (15% - 5%)]

= 5% + 15% = 20%

Required Return = [P1 + D1 - P0] / P0

0.20 = [$115 + $5 - P0] / P0

0.20 * P0 = $120 - P0

P0 + 0.20*P0 = $120

1.20*P0 = $120

P0 = $120 / 1.20 = $100

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