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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
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!
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