Stock Bs beta coefficient is b B 1 2 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 $80 the next expected dividend, D 1 , is $3 20 and the stocks expected constant growth rate is 4 percent Which of the following is correct a Stock B is undervalued Its price will fall to restore equilibrium b Stock B is fairly priced and in 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 overvalued Its price will fall to restore equilibrium

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Question: Stock Bs beta coefficient is b B = 1.2. The risk-free rate is 5 percent, and the expected return on an average stock is 11

Stock Bs beta coefficient is b_B = 1.2. The risk-free rate is 5 percent, and the expected return on an average stock is 11 percent. The current price of Stock B, P₀, is $80; the next expected dividend, D₁, is $3.20; and the stocks expected constant growth rate is 4 percent. Which of the following is correct?

a.	Stock B is undervalued. Its price will fall to restore equilibrium.
	b.	Stock B is fairly priced and in 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 overvalued. Its price will fall to restore equilibrium.

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