Stock Z recently paid a $1.20 per share dividend, which is expected to grow at a constant rate equal to 4 percent forever. The stock has a beta coefficient equal to 0.8 and its current market price is $17.83 per share.

Currently, the risk-free rate of return is 2.5% and the market risk premium is 10%. Is this stock correctly priced?

Hint:

Using DDM find for r

Using CAPM find for r

*Please explain your answer clearly. Thank you!