Part 1:A share of stock is now selling for $100. It will pay a dividend of $9 per share at the end of the year. Its beta is 1. What do investors expect the stock to sell for at the end of the year? Assume the risk-free rate is 8% and the expected rate of return on the market is 18%.

Part 2:Assume both portfolios A and B are well diversified, that E(rA) = 14% and E(rB) = 14.8%. If the economy has only one factor, and A = 1 while B = 1.1, what must be the risk-free rate?