7. Using the SML, you've calculated the required return on Keg-R-Us Brewery to be 7%. Using the

dividend constant growth model, you've determined Keg-R-Us's expected return to equal 11%. Which of

the following is most accurate?

a. Keg-R-Us is overvalued, so stockholders would sell their shares of it to reap profits.

b. Keg-R-Us is undervalued, so its existing equity holders would liquidate their holdings in it

to cut their losses.

c. Keg-R-Us is overvalued, so investors would short the stock, driving it to equilibrium.

d. Keg-R-Us is undervalued, so investors would purchase shares, driving its price up and return

down.

e. The stock markets are going to collapse, a bank panic will ensue, and Bob won't get financing

for his next business endeavor.