According to the capital asset pricing model, the market risk premium a firm used in calculating its cost of equity is proportional to the ________.

1. earnings growth plus beta yield

2. growth in dividends

3. beta coefficient for the firm's common stock

4. growth in earnings per share

The common stock of the QQQ company is currently selling for $80 a share and paid a $4 dividend last year. If dividends are expected to grow indefinitely at a 6 percent compound annual rate, what is the firm's cost of equity?

1. 8.0 percent

2. 11.3 percent

3. 10.8 percent

4. 9.0 percent