27)

Suppose you are considering buying a stock. The stock is currently trading for $15. You expect the price in one year to be $16 and it will pay a dividend of $0.75. You estimate the stocks beta at 2, the risk-free rate at 1.5%, and the expected return on the market at 7.5%. According to the CAPM, should you consider purchasing this stock?

a) The intrinsic value is $14.76. The current price is $15. You should not consider buying the stock.

b) The intrinsic value is $15. The current price should be $14.76. You should consider buying the stock.

c) The intrinsic value is $14.76. The current price $15. You should consider buying the stock.

d) The intrinsic value is $13.72. The current price $55. You should not consider buying the stock.