Question: PLEASE SHOW YOUR WORK AND EXPLAIN Stock Bs beta coefficient is b B = 0.9. The risk-free rate is 5 percent, and the expected return

PLEASE SHOW YOUR WORK AND EXPLAIN Stock Bs beta coefficient is b B = 0.9. The risk-free rate is 5 percent, and the expected return on an average stock is 11 percent. The current price of Stock B, P 0, is $50; the next expected dividend, D 1, is $2.25; and the stocks expected constant growth rate is 6.5 percent. Which of the following is correct ?

The correct is d.

a. Stock B is undervalued. Its price will fall to restore equilibrium.

b. Stock B is overvalued. Its price will fall to restore equilibrium.

c. Stock B is overvalued. Its price will rise to restore equilibrium.

d. Stock B is undervalued. Its price will rise to restore equilibrium.

e. Stock B is fairly priced and in equilibrium.

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