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Stock A 's beta coefficient is A=1.. The risk-free rate is 4 percent, and the expected return on an average stock is 8 percent. The
Stock A 's beta coefficient is A=1.. The risk-free rate is 4 percent, and the expected return on an average stock is 8 percent. The current price of Stock A,P0, is $60; the next expected dividend, D1, is $2.10; and the stock's expected constant growth rate is 8.5 percent. Which of the following is correct? a. Stock A is fairly priced and in equilibrium. b. Stock A is overvalued. Its price will fall to restor aequilibrium. c. Stock A is undervalued. Its price will fall to restore equilibrium. d. Stock A is undervalued. Its price will rise to restore equilibrium. e. Stock A is overvalued. Its price will rise to restore equilibrium. QUESTION11 Bonus: Butzke Enterprises recently paid a dividend, D 0, of $1.50. It expects to have nonconstant growth of 30 percent for 2 years followed by a constant rate of 4.5 percent thereafter. The firm's required return is 8.5 percent. What is the stock's intrinsic value today? a. $48.75 b. $70.18 c. $60.21 d. $55.80 e. $70.71
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