A stock is expected to pay a dividend of $$4\mathrm{.}20$ annually in perpetuity. The stock has a beta of $1\mathrm{.}2,$ the risk$-$

free rate is $4\mathrm{.}5\%,$ and the market risk premium is $7\mathrm{.}5\%.$

a$.$ According to CAPM, what is the required rate of return on the stock? $13\mathrm{.}5\%$

b$.$ What would you expect the current stock price to be$?$ $$31\mathrm{.}11$

c$.$ If the current stock price is actually $$28\mathrm{.}60,$ what expected return would it provide given the

forecasted perpetual dividend? $14\mathrm{.}69\%$

d$.$ What is the stock's alpha? $1\mathrm{.}19\%$

e$.$ Suppose a second stock has a perpetual dividend of $$3\mathrm{.}20$ and a beta of $0\mathrm{.}80.$ And suppose the

stock's current price is $$38\mathrm{.}15.$ Answer questions a $-$ d for this second stock. $10\mathrm{.}50\%$;$$30\mathrm{.}48$;

$8\mathrm{.}39\%$;$-2\mathrm{.}11\%$