Evaluate Verizon (VZ) common stock. The current price of VZ is $44.20 per share. EPS was 2.44 and dividends per share was 1.98 over the past four quarters. The beta of VZ is 0.88; the correlation of VZ with the market portfolio is 0.49. The long term expected constant growth rate for VZ is 3.0% The risk-free rate is 2% (10 year Treasury) and expected long-term return on the Market Portfolio 9.0%, and the tax rate is 35%. a) What is the required rate of return on VZ stock according to the CAPM? b) Based on the required return from (b), what is the most you would pay for one shares of stock? c) What is the expected rate of return on VZ stock according to the dividend growth model, using the current (market) stock price of $44.20? d) Is VZ stock under-valued or over-valued? Explain.

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