New Castle Company common stock has a beta of 1.50. The stock currently pays a dividend of

Question:

New Castle Company has a beta of 1.50. The stock currently pays a of $3 per share. The risk-free rate is 8 percent, and the market risk premium is expected to be 8.0 percent. The returns from New Castle stock are normally distributed with an expected value of 24 percent and a standard deviation of 12 percent.
a. Determine the required rate of return for New Castle’s .
b. Determine the probability that the stock of New Castle is undervalued at its current market price of $25 per share.

Common Stock
Common stock is an equity component that represents the worth of stock owned by the shareholders of the company. The common stock represents the par value of the shares outstanding at a balance sheet date. Public companies can trade their stocks on... Dividend
A dividend is a distribution of a portion of company’s earnings, decided and managed by the company’s board of directors, and paid to the shareholders. Dividends are given on the shares. It is a token reward paid to the shareholders for their...