The risk-free rate is 4% and the expected market return is 10%. A stock with a beta of 0.9 is currently priced at $40 and will pay $1.40 dividend one year later. If then the stock will be priced at $42, is the stock underpriced or overpriced?
The risk-free rate is 4% and the expected market return is 10%. A stock with a beta of 0.9 is currently priced at $40 and will pay $1.40 dividend one year later. If then the stock will be priced at $42, is the stock underpriced or overpriced?
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 7P
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The risk-free rate is 4% and the expected market return is 10%. A stock with a
beta of 0.9 is currently priced at $40 and will pay $1.40 dividend one year later. If then the
stock will be priced at $42, is the stock underpriced or overpriced?
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