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The following information is available for the stock of Scranton Co.: The expected oneyear holding period return is 25%. The stock price expected after one
The following information is available for the stock of Scranton Co.:
- The expected oneyear holding period return is 25%.
- The stock price expected after one year is $37.50.
- Dividend payout ratio = 0%.
- The stock's covariance with the market is 0.08.
- The standard deviation of the market portfolio is 15%.
- The riskfree rate is 6%.
- The expected market return is 10%.
As the SML suggests, Scranton, Co. is
Overvalued by $1.43
Undervalued by $1.75
Undervalued by $1.43
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