1. The current risk-free rate of return is 3 percent and the market risk premium is 6 percent. If the beta coefficient associated with a firms stock is 1.5, what should be the stocks required rate of return?

Hint: rRF + (rM rRF) j

2. Suppose the risk-free rate of return is 3.5 percent and the market risk premium is 7 percent. Stock A, which has a beta coefficient equal to 0.9, is currently selling for $28 per share.

a) The company is expected to grow at a 4 percent rate forever, and the most recent dividend paid to stockholders was $1.75 per share. Is Stock A correctly priced?

b) Stock As required rate of return is?

Use CAPM

c) Stock As expected rate of return is?

Use DDM to solve for g.

*Please explain your answer clearly.