Question: A common share is trading at $20. It is expected to pay a dividend of $0.80 and has always increased its dividends by a 2.5%

A common share is trading at $20. It is expected to pay a dividend of $0.80 and has always increased its dividends by a 2.5% a year. The consensus required rate of return is 7%. Given the dividend discount model (DDM) formula is (Expected Dividend / R - G), which of the following is true?

The stock is currently overvalued by $2.22

The stock is currently overvalued by $2.25

The stock is currently undervalued by $2.22

The stock is currently undervalued by $2.25

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