Chapter 11 (8 points in all)

Question 1 (1 point)

A share of common stock currently sells for $45. Current dividends are $2.5 per share annually and are expected to grow at 4.25 percent per year indefinitely. What is the rate of return required by investors in the stock?

Question 2 (1 Point)

A stock has a beta of 0.98, the risk-free rate is 3.5 percent, and the expected return on the market is 7.25 percent. Using the CAPM, what would you expect the required rate of return on this stock to be? What is the market risk premium?