Beta and Value A firm is expected to pay an annual dividend of $.80 next year. After next year the firms dividends will grow at a steady state rate of 6% per year. You are trying to value the stock and Value Line lists a stock beta of 1.42 while Yahoo is reporting a beta of 1.37. The stock is currently priced at $11.40. If E(R_M) Rf = 9.3% and the risk free rate is 2.6% the stock is ____________________ if you use the Value Line beta and is ____________________ if you use the Yahoo beta.

overpriced by $3.24; overpriced by $2.84

underpriced by $1.14; underpriced by $1.44

underpriced by $1.44; underpriced by $1.14

overpriced by $2.84; overpriced by $3.24