Question
Stock Bs beta coefficient is b B = 1.2. The risk-free rate is 5 percent, and the expected return on an average stock is 11
Stock Bs beta coefficient is bB = 1.2. 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 $80; the next expected dividend, D1, is $3.20; and the stocks expected constant growth rate is 4 percent. Which of the following is correct?
| a. | Stock B is undervalued. Its price will fall to restore equilibrium. | |
| b. | Stock B is fairly priced and in 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 overvalued. Its price will fall to restore equilibrium. |
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Financial Analysis And Modeling Using Excel And VBA
Authors: Chandan Sengupta
2nd Edition
047027560X, 978-0470275603
