The market price of a security is $40.00. Its expected rate of return is 13%. The risk free rate is 7%, and the market risk premium is 8%. What will the market price of the security be if its beta doubles (and all other variables remain unchanged)? Assuming the stock is expected to pay a constant dividend in perpetuity.© BrainMass Inc. brainmass.com June 3, 2020, 8:14 pm ad1c9bdddf
Since the stock pays a constant dividend in perpetuity, it is a perpetuity and the stock price is the present value of all dividends.
For a perpetuity, present value = ...
The solution explains how to calculate the price of a stock given a change in stock beta