Badger Business Machines stock trades at $69. The analyst covering this company believes the current price is fairly value based on his analysis. He estimates the company will pay a dividend of $1.25 next year, and it is expected to grow at a constant rate indefinitely. The risk-free rate of return is 1.9%, the market risk premium is 8.5%, and the company's beta is 0.9.

a. What is the cost of equity? (%)

b. What is the expected capital gains yield? (%)