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    Finding the Optimal Market Price

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    5. The probability distribution for kM for the coming year is as follows:

    Probability kM

    0.05 7%
    0.30 8
    0.30 9
    0.30 10
    0.05 12

    If kRF = 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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    Solution Summary

    This solution provides step by step calculations for finding the market price for a product.