Assume the expected rate of return on the market is 11% and the risk-free rate is 4%.

a. NTF stock is now selling for $60 per share. It will pay a dividend of $2 per share at the end of the year. The expected price for NTF at the end of the year is $65.44. What is its beta? (3 marks)

b. Jacky is buying a firm with an expected perpetual cash flow of $4,000 but is unsure of its risk. If Jacky thinks the beta of the firm is 0.9, when the beta is really 1.2, how much more will he offer for the firm than it is truly worth? [Hint: Value of perpetual cash flow = CF/r] (7 marks)