Question: = Stock Bs beta coefficient is b B = 0.9. The risk-free rate is 6 percent, and the expected return on an average stock is

= Stock Bs beta coefficient is b B = 0.9. The

= Stock Bs beta coefficient is b B = 0.9. The risk-free rate is 6 percent, and the expected return on an average stock is 10 percent. The current price of Stock B, PO, is $70; the next expected dividend, D 1, is $3.15; and the stock's expected constant growth rate is 2.5 percent. Which of the following is correct? 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 fairly priced and in equilibrium. e. Stock B is undervalued. Its price will rise to restore equilibrium

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