A stock has a beta of 1.35. If the market rate of return is 8.5% and the risk-free rate is 3%, what is the stocks required rate of return according to the CAPM?

a)Using the discount rate you calculated in #1, calculate the stocks intrinsic value according to the dividend discount model assuming the following parameters: D0 = 3.25, g=4.5%.

b)What is the dividend yield of the stock from #2 during the first year?

c)What is the stocks expected price at t=3?

d)Now assume D0 = 3.25, g=25% for year 1, 15% for year 2, 10% for year 3, before ultimately settling in at 5% for the long term. Using the discount rate calculated in #1, what is the expected price of the stock at t=3? (Hint: calculate D3, then use for P3)

e)Using the discount rate from #1, calculate the intrinsic value (P0) of the stock in the previous question.

f)Assuming the stocks price equals its intrinsic value at t=0, calculate the capital gains yield of the stock from #5 during the first year.