Question
Suppose the risk-free rate of return is 2.5 percent and the market risk premium is 6 percent. Stock U, which has a beta coefficient equal
Suppose the risk-free rate of return is 2.5 percent and the market risk premium is 6 percent. Stock U, which has a beta coefficient equal to 1.6, is currently selling for $24 per share. The company is expected to grow at a 4 percent rate forever, and the most recent dividend paid to stockholders was $2.25 per share. Is Stock U correctly priced? Explain. Do not round intermediate calculations. Round your answers to one decimal place. The required rate of return, that is %, is greater than?, lower than?, or equal to? the expected rate of return, that is %, which means that the selling price is too low, too high? or priced correctly.
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