1. Under CAPM, General electric sock has an expected return of 13.3%, given its beta of 1.3 and a risk-free rate of 3.4%. If the market risk premium drops by 150 basis points, what would be the new expected rate of return for GE stock.
2. Metallica Bearings, Inc., is a young start-up company. No dividends will be paid on the stock over the next nine years because the firm needs to plow back its earnings to fuel growth. The company will pay a $11 per share dividend 10 years from today and will increase the dividend by 4 percent per year thereafter. If the required return on this stock is 12 percent, what is the current share price?