a. Beta for Brennan's =Correlation of Market*Standard Deviation
of Portfolio/Standard Deviation of Market =0.3*24%/9% =0.8
b. The Required rate of stock =Risk free Rate+Beta*(Market
Return-Risk free Rate)=5%+0.8*(9%-5%)=8.2%
c. Dividend Year 1(D1)=1.50*(1+8%)
D2=1.50*(1+8%)^2
D3=1.50*(1+8%)^3
D4 =1.50*(1+8%)^3*(1+2%)
Terminal
Value=D4/(r-g)=1.50*(1+8%)^3*(1+2%)/(8.2%-2%)=31.0864
Price of Stock =1.50*(1+8%)/(1+8.2%)+1.50*(1+8%)^2/(1+8.2%)^2
+1.50*(1+8%)^3/(1+8.2%)^3+31.0864/(1+8.2%)^3
=29.02
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