don growth model. Rae uses the CAPM to compute the return on equity. He uses the annual yield of 4 percent on the 10-year Treasury bond as the risk-free return. He estimates the expected US equity risk premium, with the S&P 500 Index used as a proxy for the market, to be 6.5 percent per year. The estimated beta of Tasty Foods against the S&P 500 Index is 1.10. Accordingly, Rae's estimate for the required return on equity for Tasty Foods is 0.04 + 1.10(0,065) = 0.1115 or 11.15 percent. Using the past growth rate in dividends of 5.30 percent as his estimate of the future growth rate in dividends, Rae computes the value of Tasty Foods stock. He shows his analysis to Alex Renteria, his colleague at the pension fund who specializes in the frozen foods industry. Renteria concurs with the valuation approach used by Rae but disagrees with the future growth rate he used. Renteria believes that the stock's current price of $8.42 is the fair value of the stock. a 20. Alex Renteria has suggested that the market price of Tasty Foods stock is its fair value. What is the implied growth rate of dividends given the stock's market price? Use the re- quired return on equity based on a beta of 1.10. A. 3.87% B. 5.30%. C. 12.1%. 21. If Alex Renteria is correct that the current price of Tasty Foods stock is its fair value, what is expected capital gains yield on the stock? A. 3.87% B. 4.25%. C. 5.30%