1. (15 points) The following information is given for a stock. Investors assume that the return of the stock is best explained by a two-factor model that includes the market factor and a second risk factor. Using a dividend discount model, what is the price for this stock? Stock covariance with the market =0.5 Market variance =0.25 Stock covariance with a second risk factor =0.6 Variance of the second factor =0.3 Market Premium:3\% Second factor risk premium =1% Risk free rate =2% Current earnings per share- $5, The ROE is expected to shrink (decrease) at the rate 5% for first 3 years The ROE is expected to grow at the rate 4% forever after the first 3 years Payout for the first 3 years: 50% Payout after 3 years: 50%