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5. The probability distribution for kM for the coming year is as follows:

Probability kM

0.05 7%
0.30 8
0.30 9
0.30 10
0.05 12

If kRF = 6.05% and Stock X has a beta of 2.0, an expected constant growth rate of 7 percent, and D0 = $2, what market price gives the investor a return consistent with the stock's risk?

a. $25.00
b. $37.50
c. $21.72
d. $42.38
e. $56.94