Q8 Suppose you are considering buying a stock. The stock is currently trading for $15. You expect the price in one year to be $16 and it will pay a dividend of $0.75. What is the stocks total expected return? What portion of the total return is from the dividend yield and what portion is from capital gains?

Total return = 11.67%, dividend yield = 5%, and capital gains = 6.67%.

Total return = 6.67%, dividend yield = 5%, and capital gains = 11.67%.

Total return = 10%, dividend yield = 7.5%, and capital gains = 2.5%.

Total return = 11.67%, dividend yield = 6.67%, and capital gains = 5%.

Q11) Suppose you are considering buying a stock. The stock is currently trading for $57. You expect the price in one year to be $60 and it will pay a dividend of $0.75. You estimate the stocks beta at 2.2, the risk-free rate at 1.5%, and the expected return on the market at 7.5%. According to the CAPM, what is the maximum price you should be willing to pay for this stock? LO3

$52.96

$64.03

$35.33

$45.41