You are considering purchasing a stock. Using the DDM and CAPM, you calculate the stocks intrinsic value at $101. The stock is currently trading at $105. What should you do and why should you do it? LO5

Buy the stock and wait for the intrinsic value to reach the current market price.

Do not buy the stock because it does not offer a high enough return to justify its risk.

Do not buy the stock because it offers too low a return to justify its risk.

Buy the stock and wait for the current price to reach the intrinsic value.

You are considering purchasing a stock. Using the DDM and CAPM, you calculate the stocks expected return at 15%. The CAPM gives a required return of 12%. What should you do and why should you do it? LO5

Do not buy the stock until the expected return meets the required return.

Do not buy the stock because it offers too low a return to justify its risk.

Buy the stock because the intrinsic value if higher than the current market price.

Buy the stock because it offers a high enough return to justify its risk.

Holding all else constant, what would you expect to happen to the price of a share of stock if the expected return on the market increased? Use the CAPM and DDM to answer this question. LO2

The stocks price would increase because the expected future cash flows increased.

The stocks price would decrease because the expected future cash flows decreased.

The stocks price would increase because the discount rate increased.

The stocks price would decrease because the discount rate increased.