2) The market portfolio's expected return is 8%; risk free rate is 4%; the firm AB's beta is 1.5, then what is the current stock value? (5%) 3) Suppose right now the firm makes an announcement to increase retention ratio to 60%. The same retention ratio is going to be applied in future. Is this a piece of good news to stockholders? Why? (5%) 4) Suppose firm AB experiences a R&D failure, which drags the firm's ROE down to 8%. The retention ratio is 40%. Variables in question 2) are unchanged. Assuming you are a CFO of another listed firm B, your boss asks you to take over firm AB at a price of 1.9$. Is it a good idea or not given above information? Why? (5%) g=ROE*b Do(1+g)_ D Vo = = k-g k-g