1. Each share of NexLink stock will pay an expected dividend of $5.00 at the end of the current year. At the end of the following four years, the dividends is expected to be $5.80, $7.00, $7.60, and $8.00, respectively. After that the expected growth rate of the dividends is 12% a year for the following 10 years. Then the growth rate is expected to drop to 4% for the foreseeable future. The correlation between the return on NexLink stock and the market portfolio is expected to be 0.8 and the standard deviation of returns on the stock is expected to be 30%. The standard deviation of returns on the market is expected to be 20% and its expected return is expected to be 10% per year. The risk free rate is expected to be 4% per year.

(a) What is the opportunity cost of investing in the stock? (b) What is the value of a share of NexLink stock?(c) What would the value of a share of NexLink stock be if its ? doubled?

Following table provides the end-of-year cash flows of a project contingent on four states of nature, as well as the probability and market return associated with each state.