Suppose En Khaleef, an investor has RM100,000 and is contemplating investing in the shares of FGH Berhad, whose current market price is quoted at RM3.55 per share.The shares of FGH Berhad have a Beta coefficient of 1.55, current rates of return on government Treasury bills and the market are 8.5% and 15% respectively. FGH paid a net dividend of RM0.238 per share recently. The normal dividend growth rate is 5.5%.

i) Advise En Khaleef whether it is worthwhile buying the shares of FGH Berhad. What should the equilibrium market price be?

ii) Suppose, in addition to the decline in the rate of return on Treasury bills, the market risk- aversion declines such that the expected market rate of return is 10.5%. At what price would you advice the investor to buy FGH Berhads stock?