Question
Stock Zs beta coefficient is b Z = 1.3. The risk-free rate is 6 percent, and the expected return on an average stock is 11
Stock Zs beta coefficient is b Z = 1.3. The risk-free rate is 6 percent, and the expected return on an average stock is 11 percent. The current price of Stock Z, P 0, is $80; the next expected dividend, D 1, is $2.40; and the stocks expected constant growth rate is 5 percent. Which of the following is correct?
| a. | Stock Z is overvalued. Its price will rise to restore equilibrium. | |
| b. | Stock Z is undervalued. Its price will fall to restore equilibrium. | |
| c. | Stock Z is undervalued. Its price will rise to restore equilibrium. | |
| d. | Stock Z is overvalued. Its price will fall to restore equilibrium. | |
| e. | Stock Z is fairly priced and in equilibrium. |
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Municipal Finances A Handbook For Local Governments
Authors: Catherine D. Farvacque-Vitkovic, Mihaly Kopanyi
1st Edition
082139830X, 978-0821398302
