TUJUHUDIE I expect that a constant growth stock would have g>T 8-19 The risk-free rate of return, rre, is 5%; the required rate of return on the market, ry, is 8%; and Equilibrium Stock Schuler Company's stock has a beta coefficient of 1.5. Price a. If the dividend expected during the coming year, is $2.25, and if g = a constant 5%, at what price should Schuler's stock sell? b. Now, suppose the Bank of Canada increases the money supply, causing the risk-free rate to drop to 4% and rm to fall to 7%. What would this do to the price of the stock? c. In addition to the change in part b, suppose investors' risk aversion declines; this fact, combined with the decline in Tre, causes rm to fall to 6.5%. At what price would Schuler's stock sell? d. Now, suppose Schuler has a change in management. The new group institutes policies that increase the expected constant growth rate to 5.5%. Also, the new management stabilizes sales and profits, and thus causes the beta coefficient to decline from 1.5 to 1.3. Assume that rrp and ry are equal to the values in part c. After all these changes, what is Schuler's new equilibrium price? (Note: D, goes to $2.26.) 8-20 Mitts Cosmetics Co.'s stock price is $58.88, and it recently paid a $2 dividend. This dividend fatta