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The market price of a security is $52. Its expected rate of return is 12.1%. The...

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Finance

The market price of a security is $52. Its expected rate ofreturn is 12.1%. The risk-free rate is 4% and the market riskpremium is 7.3%. What will be the market price of the security ifits correlation coefficient with the market portfolio doubles (andall other variables remain unchanged)? Assume that the stock isexpected to pay a constant dividend in perpetuity. (Do notround intermediate calculations. Round your answer to 2 decimalplaces.)

Market price=

Answer & Explanation Solved by verified expert
4.5 Ratings (904 Votes)
Firstly we need to calculate the Beta of the Stock We cancalculate Beta with CAPM equationwhereER Expected ReturnRf risk    See Answer
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