Chapter 9 CT

Kay Williams is interested in purchasing the common stock of Reckers, Inc., which is currently priced at $35.40. The company is expected to pay a dividend of $2.58 next year and to increase its dividend at a constant rate of 6.50 percent. If the required rate of return is 14%, should Kay purchase the stock at the current price?

Yes, the stock is a good buy because it is well priced.

No, the stock is not a good buy because it is overpriced.

Yes, the stock is a good buy because it is underpriced.

none of the above