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Practice Question 14 A firms class A common shares are currently trading for $13.70 on the Toronto Stock Exchange. The risk free rate prevailing in

Practice Question 14

A firms class A common shares are currently trading for $13.70 on the Toronto Stock Exchange. The risk free rate prevailing in the market is currently 5%, the expected return on the market portfolio is 11%. The firm has a beta of 1.6 and is expected to pay a dividend of $2 forever. Under these conditions, the firms common shares are currently:

overvalued.

undervalued.

fairly valued.

strongly valued.

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