Assume that the CAPM is true. Stock 1 has a price of $54 and a beta of 0.7. The stock is expected to pay an annual dividend of $1.35 one year from now. Stock 2 has a beta of 1 and its expected return is 7.2%. Stock 3 has a beta of 1.5 and its expected return is 8.2%.

Part 1

What is the expected return on the market portfolio?

Part 2

What is the risk-free rate?

Part 3

What is the expected return for stock 1?

Part 4

What price do you expect for stock 1 after one year, just after the dividend payment?