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Let us assume that the long-term annual market return is expected to be 10%. If the long-term annual expected growth is 5%, while the pessimistic
Let us assume that the long-term annual market return is expected to be 10%. If the long-term annual expected growth is 5%, while the pessimistic investors believe that the long-term annual growth rate is only 4%, the stock market will be ______. (HINT: We used the constant growth formula for a similar question in the investor sentiment topic in the chapter on efficient markets)
A. Undervalued by 1%
B. Undervalued by 16.67%
C. Overvalued by 1%
D. Overvalued by 16.67%
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