EX8. 4.

The current risk-free rate of return, r_RF, is 4 percent and the market risk premium, RP_M, is 8 percent. If the beta coefficient associated with a firm's stock is 1.9, what should be the stock's required rate of return? Round your answer to one decimal place.

_______________%

5. Suppose the risk-free rate of return is 4.5 percent and the market risk premium is 9 percent. Stock U, which has a beta coefficient equal to 1.6, is currently selling for $25 per share. The company is expected to grow at a 4 percent rate forever, and the most recent dividend paid to stockholders was $3.25 per share. Is Stock U correctly priced? Explain. Do not round intermediate calculations. Round your answers to one decimal place.

The required rate of return, that is ______ %, is [greater than/lower than/equal to] the expected rate of return, that is ______%, which means that the selling price is [too low/too high/priced correctly]