The beta coefficient for stock J is bj = 0.4, while that for stock K is bk = -0.5. (Note the negative sign)

1. 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 J and K?

2. For stock J, suppose the current price P0, is $25; the next expected dividend D1, is $1.50; and the stock's expected constant growth rate is 4%. Is the stock in equilibrium?

Explain your answer and describe what will happen if the stock is not in equilibrium.