You are considering buying shares in Building Homes. The stock is currently trading for $17.24. Analysts expect the next annual dividend to be $1.25. (The next dividend will be paid in one year.) Dividends are expected to grow in perpetuity at the annual rate of 2%. Homes beta is 1.077. The risk-free rate is 2% and the expected return on the market is 8.5%. Use this information to answer the questions that follow.

What annual return will you earn on Home if you buy it today, hold it, and receive the perpetual stream of growing dividends?

• 8.75%

• 9.25%

• 9.05%

• 8.55%

Under the CAPM, what is the equilibrium rate of return on Homes shares given its systematic risk?

• 9.6%

• 9.4%

• 9.0%

• 8.6%

Homes SML plots (on/above/below) the SML

Home's stock price is currently (cheap/fair/expensive)