1. Your broker has recommended that you purchase stock in Alacan, Inc. She estimates that the 1-year target price is $56.00, and Alacan consistently pays an annual dividend of $12.00. Analysts estimate that the stock has a beta of 1.32. The current risk-free rate is 2.80% and the market return (RM) is 12.20%. Assuming that CAPM holds, what is the intrinsic value of this stock?
$59.02
$58.08
$55.71
$60.68
$53.61
2. Knobloch Insurnace co. promises to pay Dereck $120,000 on his 65th birthday in return for a one-time payment of $6,000 today. Dereck is 25 years old right now. At what annual rate of return would Dereck be indifferent between accepting the company's offer and investing the premium on his own? Assume interest is compounded quarterly.
A. 7.56% B. 8.07% C. 7.05% D. 8.56% E. 7.88%