Question
Pietro Mansbridge has a portfolio comprised of the following three stocks: Stock Share Price Number of shares Expected dividend next year(D 1 ) Constant dividend
Pietro Mansbridge has a portfolio comprised of the following three stocks:
| Stock | Share Price | Number of shares | Expected dividend next year(D1) | Constant dividend growth rate | Beta |
| Westport | $28.21 | 2,000 | $1.70 | 5% | 0.85 |
| SignalChem | $41.50 | 1,500 | $3.25 | 8% | 1.25 |
| RE Royalties | $15.45 | 3,500 | $1.80 | 4% | 1.70 |
The risk-free is currently 5% and the market risk premium is 7%.
Determine if each stock is overvalued, undervalued or properly valued according to the CAPM? Show your calculations.
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Introduction To Derivatives And Risk Management
Authors: Robert Brooks, Don M Chance, Roberts Brooks
8th Edition
0324601212, 9780324601213
