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Lucy considers buying a share of May Inc.s stock at a price of $120. The stock is expected to pay a dividend of $2.40 next

Lucy considers buying a share of May Inc.s stock at a price of $120. The stock is expected to pay a dividend of $2.40 next year, and her advisory service tells her that she can expect to sell the stock in one year for $135. The stock's beta is 1.10. Risk free rate is 3%. Assume that a stock with a beta of 1 has an expected return of 14%. What is the forecasted (holding period) return? Whether the Mays stock is underpriced, fairly priced, or overpriced?

A.

12.5%, overpriced

B.

12.5%, underpriced

C.

14.5%, overpriced

D.

14.5%, underpriced

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