Beta and Value A firm is expected to pay an annual dividend of $.60 next year. After next year the firms dividends will grow at a steady state rate of 5% per year. You are trying to value the stock and Value Line lists a stock beta of 1.05 while Yahoo is reporting a beta of 1.00. The stock is currently priced at $15.80. If E(R_M) Rf = 7.9% and the risk free rate is 2.1% the stock is ____________________ if you use the Value Line beta and is ____________________ if you use the Yahoo beta.

Multiple Choice

• underpriced by $1.58; underpriced by $1.88

• underpriced by $1.88; underpriced by $1.58

• overpriced by $4.68; overpriced by $3.80

• overpriced by $3.80; overpriced by $4.68