Suppose you borrow $10,000 with the interest rate of 12 percent. You are required to amortize the loan over 4 years with equal end-of-year payments. Set up an amortization schedule that shows the annual payments and the amount of each payment that goes to pay off the principal and the amount that constitutes interest.

(b) What is the appropriate price for a share of an investment if it is expected to give an annual dividend of $0.12 for the foreseeable future, and your required rate of return is 12 percent? Explain your answer by showing the necessary calculation.

(c) Assume that the risk-free rate is 5 percent and the market-risk premium is 4 percent. What is the required rate of return for Stock Y if its beta is 0.7? If the stocks actual return is 8 percent, in your opinion, is Stock Y under- or overvalued? Explain.