$(7-10)$ The beta coefficient for Stock C is

c $=$

$0\mathrm{.}4$ and that for Stock D is

d

$=-0\mathrm{.}5($Stock D$$s beta

is negative, indicating that its rate of return rises whenever returns on most other stocks fall.

There are very few negative$-$beta stocks, although collection agency and gold mining stocks are

sometimes cited as examples.$)$

a$.$ If the risk$-$free rate is $9\%$ and the expected rate of return on an average stock is $13\%,$

what are the required rates of return on Stocks C and D$?$

b$.$ For Stock C$,$ suppose the current price, P

o

$,$ is $$25$; the next expected dividend, D

$1$

$,$ is

$$1\mathrm{.}50$; and the stock$$s expected constant growth rate is $4\%.$ Is the stock in equilibrium?

Explain, and describe what would happen if the stock were not in equilibrium