Broad Horizons (BH) recently paid a $3 per share dividend, which is expected to grow at a constant rate forever. BHs stock, which has a beta coefficient equal to 1.1, is selling for $39.75 per share. Currently, the risk-free rate of return is 4 percent and the return on an average stock is 10 percent. Answer the following:

1) Describe how to determine the appropriate rate of return investors should earn for purchasing an investment.

2) If BHs stock is selling at its equilibrium price, what is its growth rate?