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Suppose the risk - free rate of return is 4 percent and the market risk premium is 7 . 5 percent. Stock Q , which

Suppose the risk-free rate of return is 4 percent and the market risk premium is 7.5 percent. Stock Q, which has a beta coefficient equal to 1.6, is currently selling for $11.55 per share. The company is expected to grow at a 5 percent rate forever, and the most recent dividend paid to stockholders was $1.10 per share. Is Stock Q correctly priced? Explain.

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