The risk-free rate of return is 1 percent, and the expected return on the market is 8.7 percent. Stock A has a beta coefficient of 1.7, an earnings and dividend growth rate of 6 percent, and a current dividend of $2.20 a share. Do not round intermediate calculations. Round your answers to the nearest cent.

1. What should be the market price of the stock?

$

2. If the current market price of the stock is $45.00, what should you do?

The stock -Select-shouldshould notItem 2 be purchased.

3. If the expected return on the market rises to 10.9 percent and the other variables remain constant, what will be the value of the stock?

$

4. If the risk-free return rises to 2.5 percent and the return on the market rises to 11.7 percent, what will be the value of the stock?

$

5. If the beta coefficient falls to 1.6 and the other variables remain constant, what will be the value of the stock?

$

6. Explain why the stocks value changes in c through e.

The increase in the return on the market -Select-increasesdecreasesItem 6 the required return and -Select-increasesdecreasesItem 7 the value of the stock.

The increase in the risk-free rate and the simultaneous increase in the return on the market cause the value of the stock to -Select-increasedecreaseItem 8 .

The decrease in the beta coefficient causes the firm to become -Select-lessmoreItem 9 risky as measured by beta, which -Select-increasesdecreasesItem 10 the value of the stock.