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?

EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 7P
icon
Related questions
Question

 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? 

Expert Solution
steps

Step by step

Solved in 5 steps

Blurred answer
Knowledge Booster
Risk and Return
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Recommended textbooks for you
EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
Finance
ISBN:
9781337514835
Author:
MOYER
Publisher:
CENGAGE LEARNING - CONSIGNMENT
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Intermediate Financial Management (MindTap Course…
Intermediate Financial Management (MindTap Course…
Finance
ISBN:
9781337395083
Author:
Eugene F. Brigham, Phillip R. Daves
Publisher:
Cengage Learning