Consider two firms, Rosehill Corporation and Purwell Industries that are each expected to pay the same $2.5 million dollar dividend every year in perpetuity. Rosehill Corporation is riskier and has an equity cost of capital of 15%. Purwell Industries is not as shaky as Rosehill, so Purwell has an equity cost of capital of only 10%. Assume that the market portfolio is not efficient. Both stocks have the same beta and an expected return of 13%.   The alpha for Rosehill is closest to:       3%     -3%     -2%     2%

Essentials Of Investments
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Consider two firms, Rosehill Corporation and Purwell Industries that are each expected to pay the same $2.5 million
dollar dividend every year in perpetuity. Rosehill Corporation is riskier and has an equity cost of capital of 15%.
Purwell Industries is not as shaky as Rosehill, so Purwell has an equity cost of capital of only 10%. Assume that the
market portfolio is not efficient. Both stocks have the same beta and an expected return of 13%.
 
The alpha for Rosehill is closest to:
 
   

3%

   

-3%

   

-2%

   

2%

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