Question: Consider three stocks Q, R and S. Beta STD (annual) Forecast for nov 2009 Dividend Stock Price Q 0.45 35% $.50 $45 R 1.45 40%

Consider three stocks Q, R and S.

	Beta	STD (annual)	Forecast for nov 2009
			Dividend	Stock Price
Q	0.45	35%	$.50	$45
R	1.45	40%	0	$75
S	-0.20	40%	$1	$20

Use the risk-free rate of 2.0% and an expected rate of return of 9.5%. The markets standard deviation is 18%, assume that the next dividend will be paid after 1 year, at t=1

According to the CAPM, what is the expected rate of return of cash stock?
What should todays price be for each stock, assuming the CAPM is correct?

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