The covariance between the returns of AZA Ltds shares and the returns of the market portfolio is 0.05. The standard deviation of the return of the market portfolio is 20%. The market risk premium is 4% and the riskfree return is 6%.

4.4.1. Calculate the required return on the firms shares. Show all calculations.

4.4.2. If the expected return based only on the constant dividend growth model is 12% are the shares correctly priced? If yes, explain why. If not, what would happen to the share price and why? (No calculations required.)