Essay
Stock ABC is currently selling for $16.72.It has just paid an annual dividend of $0.80 per share,which is expected to grow at 4.5 percent indefinitely.The risk-free rate is 6 percent.The expected return on the market portfolio is 14 percent with a standard deviation of 17 percent.
a) What is the expected return on Stock ABC?
b) Is Stock ABC overpriced, underpriced, or correctly priced if it has a beta of 0.6?
c) Is Stock ABC above, below, or on the SML?
d) What is the equilibrium price of Stock ABC? Assume the dividend grow rate remains at 4.5 percent.
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A.Expected return on Stock ABC 
B.Requir...View Answer
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Correct Answer:
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B.Requir...View Answer
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