In Problems 17–19 below, assume the risk-free rate is 8% and the expected rate of return on the market is 18%.
Problem-18
I am buying a firm with an expected perpetual cash flow of $1,000 but am unsure of its risk. If I think the beta of the firm is zero, when the beta is really 1.0, how much more will I offer for the firm than it is truly worth?
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