Investors expect the T-bill rate is 3% and market rate of return is 10% next year. G-machine company has a beta of 1.5 and its market value of common equity is $100million.

(1) What is your expected rate of return on G-machine companys share? (2 scores)

(2)If the market return actually turns out to be 8% in next year, what is your best guess as to return rate on holding G-machines share? (2 scores)

(3) Suppose now G-machine wins a major lawsuit during the year. The settlement is $5 million. G-machines stock return during the year turns out to be 12%. What is your best guess as to the settlement the market previously expected G-machine to receive from the lawsuit? The magnitude of the settlement is the only unexpected firm level event in the year. (6 scores)