(a) You observe that Stock A with a beta of 1.4 now has an expected return of 13%. Assume that the risk-free rate is 5% and that the expected return on the market portfolio is 11%. Explain whether Stock A is underpriced or overpriced, using the Capital Asset Pricing Model (CAPM). (2 marks)

(b) Suppose stock prices do not reflect the private information owned by the managers. But stock prices fully reflect all publicly available information. According to the Efficient Market Hypothesis (EMH), explain whether the market efficiency is weak-form efficiency, semi-strong-form efficiency, or strong-form efficiency. (2 marks)

(c) Briefly explain the over-investment problem from the perspective of the agency costs between debtholders and equity holders. (2 marks)

(d) Explain the benefit of paying the dividend, from the perspective of agency costs between management and shareholders. (2 marks)