You are a financial analyst for Elite Investment Company, and you are looking for undervalued securities. After searching the market, you identify Stock A and Stock B as potential purchases. Stock A is currently selling at $100 with an expected dividend of $6 and constant growth rate of 5%, while Stock B is a preferred stock, currently selling at $60 with a $5 dividend paid each year. Answer the following questions on the basis that you believe the required rates of return for both stocks should be 10%:
a. How much would you pay for Stock A?
b. How much would you pay for Stock B?
c. Which security is undervalued? Why?