1. Equilibrium stock price: The risk-free rate of return is 6%; the required rate of return on the market is 10%; and Upton Companys stock has a beta coefficient of 1.5.

1. If the dividend expected during the coming year, D1, is $2.25, and if g=a constant 5%, at what price should Uptons stock sell?

1. Now, suppose the Federal Reserve Board increases the money supply, causing the risk-free rate to drop to 5% and market return to fall to 9%. What would happen to Uptons price?

3. In addition to the change in part b, suppose investors risk aversion declines, and this, combined with the decline in risk-free rate, causing market rate to fall to 8%. Now, what is Uptons price?

4. Now suppose Upton has a change in management. The new group institutes policies that increase the expected constant growth rate from 5% to 6%. Also, the new management smooths out fluctuations in sales and profits, causing beta to decline from 1.5 to 1.3. Assume that risk-free rate and market rate are equal to the values in part c. After all these changes, what is its new equilibrium price? (Note: D1 is now $2.27).