Question
PLEASE SHOW YOU WORK. Stock Bs beta coefficient is bB = 0.9. The risk-free rate is 5 percent, and the expected return on an average
PLEASE SHOW YOU WORK. Stock Bs beta coefficient is bB = 0.9. The risk-free rate is 5 percent, and the expected return on an average stock is 11 percent. The current price of Stock B, P0, is $50; the next expected dividend, D1, is $2.25; and the stocks expected constant growth rate is 6.5 percent. Which of the following is correct?
a. Stock B is undervalued. Its price will fall to restore equilibrium.
b. Stock B is overvalued. Its price will fall to restore equilibrium.
c. Stock B is overvalued. Its price will rise to restore equilibrium.
d. Stock B is undervalued. Its price will rise to restore equilibrium.
e. Stock B is fairly priced and in equilibrium.
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