This question has two parts. The first part is using the constant growth rate formula I get $36.09 which compared to the current market price of $40, the stock is overvalued. Next part I am not sure how they got the number. Given: TLP stock sells for $40 per share and pays an annual dividend of $2.75, which is expected to increase 5% annually. An investor has a required rate of return of 13%. Which of the following conclusions can be drawn? I. it is undervalued II. It has an intrinsic value of $36.09 III. it is over valued IV. It has an expected rate of return of 12.2% Answers: a. I, II, and IV b. II, III, IV c. I and II d. III and IV The answer is B II, III and IV. I calculated the intrinsic value using V = D1/r-g 2.75 x (1+.05)/ .13- .05 = $36.09 which is lower than 40 so the stock is overvalued choice III and choice II is correct with an intrinsic value if $36.09. I determine if choice IV is also correct because it is the only one including choice II and III but it also includes IV and I do not know what to do to calculate the number 12.2%. Please just go over the calculation for choice IV, expected rate of return