Question
You are given the following information of the following three stocks. Beta Expected Dividend, D1 Current Market Price of the stock Stock A 0.5 $2.50
You are given the following information of the following three stocks.
| Beta | Expected Dividend, D1 | Current Market Price of the stock | |
| Stock A | 0.5 | $2.50 | $30 |
| Stock B | 0.9 | $2.50 | $22 |
| Stock C | 1.4 | $2.50 | $21 |
Risk free rate is 4% and Market Risk Premium is 7.6%.
Dividends for these stocks are expected to remain constant for foreseeable future. Based on your understanding of Security Market Line and Stock Valuation, determine whether the stocks are undervalued or overvalued currently.
Decision Criteria: If Expected Price of Stock > Current Market Price, the stock is undervalued, If Expected Price of Stock < Current Market Price, the stock is overvalued and If Expected Price of Stock = Current Market Price, the stock is appropriately valued.
Fill in the following blanks with over or under.
Stock A is_____ valued
Stock B is______ valued
Stock C is_____ valued
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Management Science The Art Of Modeling With Spreadsheets
Authors: Stephen G. Powell, Kenneth R. Baker
3rd Edition
0470530677, 978-0470530672
