Computation of Required Rate of Return on Stock:

Required Rate of Return = (Expected Price Next Year+Expected Dividend Next Year)/Current Stock Price - 1

= ($2.80+$98)/$84 - 1

= $100.80/$84 - 1

= 1.20 - 1

Required Rate of Return = 0.20 or 20%

Now we calculate Risk-free Rate:

Required Rate of Return (using CAPM) = Risk-free Rate + Beta*Market Risk Premium

 20% = Risk-free Rate + 1.35*7% 

20% = Risk-free Rate + 9.45%

Risk-free Rate = 20% - 9.45% = 10.55%