Question: 2. Two stocks, A and B, have the same level of risk. That is, A=1.25 and B=1.25. The return on the market portfolio is RM=12%

2. Two stocks, A and B, have the same level of risk. That is, A=1.25 and B=1.25. The return on the market portfolio is RM=12% and the risk-free rate is RF=2%. a. Stock A's last dividend was D0=$1.25 and its growth rate of dividends in the first period is g=3%. After the first period the growth rate of dividends is 0%. (i) Find the equilibrium rate of return for A. (5 points) (ii) Find the equilibrium price of A. (5 points) b. Stock B's last dividend was D0=$1.2875 and its growth rate of dividends is 0%. (No growth.) (i) Find the equilibrium rate of return for B. (5 points) (ii) Find the equilibrium price of B. (5 points

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