It is January 1, 2020. Normal America, Inc. (NA), has paid a year-end dividend in each of the last 10 years, as shown by the table below:

a. Calculate NA’s β with respect to the SP500.

b. Suppose that the Treasury bill rate is 5.5% and that the expected return on the market is E(rM) = 13%. If the corporate tax rate TC = 3%, calculate NA’s cost of equity using the CAPM model.

c. Assume that NA’s cost of debt is 8%. If the company is financed by one-third equity and twothirds debt, what is its weighted average cost of capital using the CAPM model?

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A B 1 C NORMAL AMERICA, INC. Dec. 31 Dec. 15 dividend SP500 Year 23456 stock price per share return 2010 33.00 2011 30.69 2.50 4.7% 5 2012 35.38 2.50 16.2% 6 2013 42.25 3.00 31.4% 7 2014 34.38 3.00 -3.3% 8 2015 36.25 1.60 30.2% 9 2016 32.25 1.40 7.4% 10 2017 43.00 0.80 9.9% 11 2018 42.13 0.80 1.2% 12 2019 52.88 1.10 37.4% 13 2020 55.75 1.60 22.9%