Stock Bs beta coefficient is b B 1 3 The risk free rate is 5 percent, and the expected return on an average stock is 12 percent The current price of Stock B, P 0, is $50 the next expected dividend, D 1, is $2 00 and the stocks expected constant growth rate is 10 percent Which of the following is correct a Stock B is overvalued Its price will fall to restore equilibrium b Stock B is undervalued 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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Question: Stock Bs beta coefficient is b B = 1.3. The risk-free rate is 5 percent, and the expected return on an average stock is 12

Stock Bs beta coefficient is b B = 1.3. The risk-free rate is 5 percent, and the expected return on an average stock is 12 percent. The current price of Stock B, P 0, is $50; the next expected dividend, D 1, is $2.00; and the stocks expected constant growth rate is 10 percent. Which of the following is correct?

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

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

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

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

Stock B is fairly priced and in equilibrium.

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