A. What is the beta of a portfolio with the following information: 16% Required rate of return 6% Risk-Free rate 23% Expected rate of return for market R Rf Rm R Problem #2 P P P B. Is this portfolio more risky or less risky than the market? = P = P A. A company has cost of equity of 12% and a dividend growth rate of 3%. Its dividends for next year is $4.58 per share. What should the stock's price be? P = = Rf Beta = +B +8 +B 11 B. If the cost of equity dropped to 8% , what would the new stock price be? x (Rm- D1 Rf) D1 (r-e) R= Rate of Return Rf Risk free rate Rm = Expected rate of return for the market as a whole B = Beta P = Price D1 = Dividend 1 r=rate of inflation g-constant annual compound growth rate