1. Ordinary Corp. is expected to pay a dividend of $2.58 per share over the next year, and the stock is currently selling for $37.50 a share. If dividends are expected to grow at 1 percent a year, what is the cost of existing common stock?

2. Betty Corporation's common stock has a beta of 1.27. The interest rate on 10-year U.S. Treasury bonds is 2.30 percent. Assuming an average market risk premium of 5.0 percent, use the mean-variance capital asset pricing model to estimate the cost of existing common equity for Betty Corporation.