Problem: The risk free rate of return, r RF, is 6 percent; the required rate of return on the market, rM is 10 percent; and Upton Company's stock has a beta coefficient of 1.5.
A. If the dividend expected during the coming year, D1, is $2.25 and if g= a constant 5 percent at what price should Upton's stock sell?
B. Now suppose the Federal Reserve Board increases the money supply, causing the risk-free rate to drop to 5% and rM to fall to 9 percent. What would happen to Upton's price?