Suppose you are considering buying a stock. The stock is currently trading for $30. You expect the price in one year to be $30.50 and it will pay a dividend of $0.25. You estimate the stocks beta at -0.2, the risk-free rate at 5%, and the expected return on the market at 10%. According to the CAPM, should you consider purchasing this stock? LO3

A. The intrinsic value is $29.57. The current price is $30. You should not consider buying the stock.

B. The intrinsic value is $30. The current price should be $29.57. You should consider buying the stock.

C. The intrinsic value is $29.57. The current price $30. You should consider buying the stock.

D. The intrinsic value is $33.33. The current price $30. You should not consider buying the stock.

Suppose you are considering buying a stock. The stock is currently trading for $30. You expect the price in one year to be $30.50 and it will pay a dividend of $0.25. What is the stocks total expected return? What portion of the total return is from the dividend yield and what portion is from capital gains? LO4

A. Total return = 2.5%, dividend yield = 0.83%, and capital gains = 1.67%.

B. Total return = 1.67%, dividend yield = 0.83%, and capital gains = 2.5%.

C. Total return = 3%, dividend yield = 1.5%, and capital gains = 1.5%.

D. Total return = 6.5%, dividend yield = 7.5%, and capital gains = -1.0%.