A Stock Recently Paid a Dividend of $2

Multiple Choice

A stock recently paid a dividend of $2.5 per share. Its growth rate is expected to be 8 percent. Investors require a 10 percent return. The stock is selling in the market for $150. What is this stock worth and is the stock undervalued or overvalued?

A) $125; undervalued
B) $125; overvalued
C) $135; undervalued
D) $135; overvalued