You are employing a multi-factor model to predict security returns. Your model, of course, uses sensitivity to the Market; you have also included sensitivity to market interest rates and sensitivity to inflation. You are analyzing Alpac Corporation, a company that just paid a dividend of $1.50 per share. Your analysis indicates that Alpac's Beta for the Market sensitivity is 1.20, its Beta for unexpected market interest rate changes is .90 and its Beta for inflation is 1.33. Premiums for the Market, interest rates and inflation are 5.50%, 3.20%, and 2.10%, respectively. The risk-free rate is currently 2.25%. Alpac's dividends are expected to grow at an annual rate of 4% indefinitely.

Your boss agrees with all of your analysis EXCEPT for your estimate of sensitivity to market interest rates; she feels the Beta should be 50% higher than your estimate. What is the difference between your stock price estimate for Alpac Corporation and that of your boss?

$1.72

$1.78

$1.74

$1.82

None of the above