Assume the risk free rate is 5% and the expected rate of return on the market is 15%. I am buying a firm with an expected perpetual cash flow of $1,000 but unsure of its risk. If I think the beta of the firm is zero, when the beta is really 0.5, how much more will I offer for the firm than it is truly worth? 

$10,000 

$7,576 

$20,000 

$16,667

Answer rating: 100% (QA)

SOLUTION Risk freerate interest 5 Expected re... View the full answer