Stock A has a systematic risk of A=1.5 The risk-free rate is rF=2% and the return on the market portfolio is rM=12%. The last dividend paid was D0=$2.25. The growth rate of dividends in the first period is g1=3%, and from the second period on is g2+=2%.

1. The required rate of return for A is

a. 2%

b. 12%

c. 3%

d. 17%

e. 1.5%

2. The price at time 1, P1 is

a. $16.55

b. $15.45

c. $15.76

d. $19.31

e. $13.24

3. The price at time 1, P0, is

a. $16.55

b. $15.45

c. $15.76

d. $19.31

e. $13.24

4. If the actual rate of return is 14%, Stock As price is $19.31, and

I. Stock A is overpriced and should be sold

II. Stock A has a Jensens Alpha of -3%

III. Stock A is in equilibrium

a. I only

b. II only

c. III only

d. I and II only

e. I, II, and III