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The stock of company A has a beta of 1.5. The return of market portfolio is 9% and the risk-free rate is1%.
1) According to the Capital Asset Pricing Model (CAPM), what is the expected return of this stock?
2) Assuming that the stock has just paid a dividend of $0.2 per share and the dividend growth rate is constantly 5% per year. If you use the expected return implied by the CAPM (in question (1)) as the market capitalization rate, what should be the stock price today according to the constant growth model?
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