. Pedro has a beta of 1.5 and the current Treasury Bond rate is 4 percent with the market required rate of return of 12 percent.

Pedro's common stock has a required rate of return of

a. 17% B. 16% C. 24% D. 12%

The market risk premium is

a. 12% b. 5% c. 8% d. none.

Pedro past dividend payments were:

YEAR DIVIDEND

2002 2.00

2003 2.12

2004 2.25

2005 2.30

2006 2.53

2007 2.68

Pedros stock should sell for $_________________

Draw the SML given the information from Pedro and properly label the axis and the points, label the line SML1.

Draw a second SML on the same graph that would show an increase in the T-Bond rate by 2% and label it SML2.