b. The dividend yield for Rubinstein Robotics Corporation is $1.28/

$32 = 4.00%.

The equation implies that dividend income is not as attractive as capital gains. Therefore, a higher return is required for the high-dividendpaying stock. In this case, dividend yield is less than the risk-free rate, so the effect is negative.

c. The price/earnings ratio of the stock is $32/$2.56 = 12.5 times.

R,, = .08 + .075(1.25) - .006(12.5 - 11.0) = 16.48%

A higher than average price/eamings ratio implies an expectation of a lower expected return than the CAPM without extension would predict.