Stock Ms beta coefficient is b M 0 9 The risk free rate is 5 percent, and the expected return on an average stock is 12 percent The current price of Stock M, P 0, is $50 the next expected dividend, D 1, is $1 75 and the stocks expected constant growth rate is 3 5 percent Which of the following is correct a Stock M is undervalued Its price will rise to restore equilibrium b Stock M is fairly priced and in equilibrium c Stock M is overvalued Its price will fall to restore equilibrium d Stock M is overvalued Its price will rise to restore equilibrium e Stock M is undervalued Its price will fall to restore equilibrium

The Answer is in the image, click to view ...

Question: Stock Ms beta coefficient is b M = 0.9. The risk-free rate is 5 percent, and the expected return on an average stock is 12

Stock Ms beta coefficient is b M = 0.9. The risk-free rate is 5 percent, and the expected return on an average stock is 12 percent. The current price of Stock M, P 0, is $50; the next expected dividend, D 1, is $1.75; and the stocks expected constant growth rate is 3.5 percent. Which of the following is correct?

	a.	Stock M is undervalued. Its price will rise to restore equilibrium.
	b.	Stock M is fairly priced and in equilibrium.
	c.	Stock M is overvalued. Its price will fall to restore equilibrium.
	d.	Stock M is overvalued. Its price will rise to restore equilibrium.
	e.	Stock M is undervalued. Its price will fall to restore equilibrium.

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

High Time Tours leased rock-climbing equipment from Adventures Leasing on January 1, 2021. High Time has the option to renew the lease at the end of two years for an additional three years for $8,000...

Stock B's 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 d...

= 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...

Stock Zs beta coefficient is b Z = 0.9. The risk-free rate is 6 percent, and the expected return on an average stock is 11 percent. The current price of Stock Z, P 0 , is $80; the next expected...

Stock Zs beta coefficient is b Z = 1.3. The risk-free rate is 6 percent, and the expected return on an average stock is 11 percent. The current price of Stock Z, P 0 , is $80; the next expected...

I don't think my answers are correct please answer all!! Thank you If S Bill Gates Corporation is a holding company with four main subsidiaries. The percentage of its business coming from each of the...

11 12 Bill Gates Corporation is a holding company with four main subsidiaries. The percentage of its 13 business coming from each of the subsidiaries, and their respective betas, are as follows: 14...

Problem 11-05 Jersey Jewel Mining has beta coefficient of 1 2. Currently the risk-free rate is 1 percent and the anticipated return on the markets 6 percent. JM pays $5.50 dividend that is growing at...

Bill Gates Corporation is a holding company with four main subsidiaries. The percentage of itsbusinesscoming from each of the subsidiaries, and their respective betas, are as follows: SUBSIDIARY...

. 2) A stock earned 30% in 2017 and -15% in 2018 a) What is the arithmetic return? Geometric average retur b) If you invested $50,000 at the beginning of 2017 and added. 20 at the beginning of 2017...

Totty Company is considering the following project to produce a product. Year After-tax Cash Flow in $ 0 -100.000 1 33.950 2 33.850 3 33.950 4 33.450 The management believes if the company delays...

In Fig P10.62 let Vo = 6 m/s and yo = 1 m. If the maximum bump height is 35 cm, estimate (a) The Froude number over the top of the bump; and (b) The maximum increase in the water-surface level.

You are given the following information: All policies have 12 months terms. The effective date is proposed to be 01/10/2019 and it will be in effect for 12 months. There are premium rate changes...

HW 9 Chain Rule Tangent Planes: Problem 1 1 ( 1 point ) Find the point on the graph of z = 2 y 2 - 4 x 2 at which vector n = ( : 4 8 , 3 6 , 3 : ) is normal to the tangent plane. P =

The electric field in terms of spherical coordinates is defined as follows: E = krr Here, k is the constant. Obtain the expression for the charge density. (A) 5k,r? (B) 2k,r? (C) 4k,r? (D) k,r?

The radio-active decay reaction is given by e+e* y+y. Calculate the wavelength of y photon produced in the given radio-active decay. (A) 1.2 pm () 5.2 pm () 4.2 pm (D) 2.4 pm

Consider the three following matrices: 1 0 1 0 -i 0 A =0 -1 0 B =0 0 and C = i -i 1 0 0 -1 i Calculate the Tr(ABC)'). () 1 (b) 2 () 2i (d) 0

The average energy of an electron in a specific metal at 0K is 2.9 eV. Calculate the value of the Fermi energy in a specific metal. (A) 5.51 eV () 2.44 eV () 4.83 eV (D) 2.83 eV

Calculate the peak-wavelength for the human skin when the temperature of the human skin is 32 C. (a) 2x10 m (b) 9.5x10- m (c) 5x10 m (d) 3x10 m

The Role of the Project Manager in Ensuring PMIS ( Project Management Information Systems ) Success, Sanchez ( 2 0 1 7 ) argues that the project manager plays a crucial role in ensuring project...

2. Is it a good idea to give someone who is underperforming a raise? Does it send the wrong signal, insofar as it seems to suggest that poor performance leads to rewards?

4. Of the compensation, benefits, and incentives practices we discussed in, which would you recommend JDV implement, and why?

1. Explain what is meant by ethical behavior.