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You discover an investment costing $5,000 which has an expected total return of 14% pa, but a required return of only 10% pa. Of the
You discover an investment costing $5,000 which has an expected total return of 14% pa, but a required return of only 10% pa. Of the 14% pa total expected return, the capital return is expected to be 9% pa. Assume that the required return of 10% remains constant, the dividends can only be re-invested at 10% pa and all returns are given as effective annual rates. Which of the following statements is NOT correct? O a. The investment's price at time t=20 would be $28,022.05 O b. The expected dividend return is 5% O c. When plotted on the Security Market Line, the investment would have a positive alpha. O d. The investment is currently over-priced O e. You would use a discount rate of 10% to find the NPV of this investment
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