Hello,

I need some help about this exercise.

Thanks

Assume the risk-free rate is 4% and the expected rate of return on the market is 11%. a. HSU stock is now selling for $60 per share. It will pay a dividend of $2 per share at the end of the year. Its beta is 1.2. What do you expect the stock to sell for at the end of the year? (4 marks) b. Dave is buying a firm with an expected perpetual cash flow of $5,000 but is unsure of its risk. If Dave thinks the beta of the firm is 0.8, when the beta is really 1.2, how much more will he offer for the firm than it is truly worth? (8 marks) (Hint: Value of perpetual cash flow = CF/r] c. AXE stock has an expected rate of return of 15%. What is its beta? (2 marks)