Question: The Abacus Computer Computer has decided to use the Capital Asset Pricing Model (CAPM) to estimate its risk-adjusted rate of return (k) in order to

The Abacus Computer Computer has decided to use the Capital Asset Pricing Model (CAPM) to estimate its risk-adjusted rate of return (k) in order to determine the price of its common stock. The firm's beta is 2. The S&P 500 has returned 9% to investors over a long period of time, and Abacus has decided to use this value as its expected market return. Treasury bills are currently providing investors with a risk-free return of 0.5%. Abacus next expected dividend is $3.25, and its growth rate of dividends is estimated at 10%. What is its risk-adjusted rate of return and its stock price?

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