Problem H2. Assume the risk free rate is 6 percent and the market risk premium is 6 perceat. The stock of Physicians Care Network ( PCN) has a beta of 1.5. The last dividend paid by PCN(D0) was 52 per share. What would PCN's stock value be if the dividend was expected to grow at a constant 5 percent? 0 percent? 5 percent? 10 percent? First, the Security Market Line (SMIL) of the Capital Asset Pricing Model (CAPM) must be used to determine the stock's required rate of return: Now, the constant growth model can be applied using each growth rate given: Eg. Growth =5% E(P0)R(Rs)E(g)D0[(1+E(g)].15(.05)2(1+(.05))$9.50 Now, the constant growth model can be applied using each growth rate given: Eg. Growth =5% : E(P0)=R(Rs)E(g)D0[(1+E(g)].15(.05)2(1+(.05))=$9.50 Growth =0% : Growth =5% : Growth =10%