1. Stock A has a beta of 1.6 and is currently earning 12.1%. Stock B has a beta of .7 and has a dividend yield of 2% and a capital gains yield of 7%. The risk-free rate is 3.5% and the market risk premium is 6%. Show work for partial credit. (6 points)
   1. Both stocks are fairly priced.
   2. Stock A is overpriced and Stock B is underpriced.
   3. Stock A and Stock B are both underpriced.
   4. Stock A is underpriced and Stock B is overpriced.
   5. Both Stock A and Stock B are overpriced.
2. Allis Used Cars will sell you a 2001 Toyota Forerunner for $9,500 with no money down. You agree to make monthly payments for 4 years. The stated rate on the loan is 10% compounded monthly.
   1. What is the size of Allies monthly payment? (6 points)
   2. How much did Allie pay for her car? (3 points)
   3. How much interest did Allie pay? (3 points)