ABC's most recent dividend was $3.00 per share and is selling today in the market for $70.
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Question:
ABC's most recent dividend was $3.00 per share and is selling today in the market for $70. The dividend is expected to grow at a rate of 4% per year for the foreseeable future. If the market return is 10% on investments with comparable risk, should you purchase the stock?
A. No, because the current market price of the stock is overpriced (too high) by $20.
B. No, because the current market price of the stock is overpriced (too high) by $18.
C. Yes, because the current market price of the stock is underpriced (too low) by $20.
D. Yes, because the current market price of the stock is underpriced (too low) by $18.
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