1. 5,Consider three stocks: Q, R and S.

	Beta	STD (annual)	Forecast for Nov 2008
			Dividend	Stock Price
Q	0.45	35%	$0.50	$45
R	1.45	40%	0	$75
S	-0.20	40%	$1.00	$20

Q5. See the table above:

Use a risk-free rate of 2.0% and an expected market return of 9.5%. The markets standard deviation is 18%. Assume that the next dividend will be paid after one year, at t = 1.

1. According to the CAPM, what is the expected rate of return of each stock?
2. What should todays price be for each stock, assuming the CAPM is correct?