1. The market risk premium for next period is 8.20% and the risk-free rate is 2.50%. Stock Z has a beta of 1.061 and an expected return of 9.80%. What is the: "
a) Market's reward-to-risk ratio?
b) Stock Z's reward-to-risk ratio
2. If the expected rate of return for the market is not much greater than the risk-free rate of return, what does this suggest about the general level of compensation for bearing systematic risk?
3. The common stock, which can be bought at $41.50, has experienced a 7% annual growth rate in dividends and has just paid a $1.25 dividend. What is the cost of the common stock when the flotation cost is 7%?