Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN: 9781260013924
Author: Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher: Mcgraw-hill Education,
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Your stockbroker is trying to sell you a stock with a current market price of $54. The stock's last
dividend (Do) was $1.45, and earnings and dividends are expected to increase at a constant
growth rate of 12%. Your required return on this stock is 15%. From a strict valuation
standpoint, you should:
A. Buy the stock; it is fairly valued.
B. Buy the stock; it is undervalued by $5.67
C. Buy the stock; it is undervalued by $.13.
D. Not buy the stock; it is overvalued by $5.67
E. Not buy the stock; it is overvalued by $.13
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Transcribed Image Text:Your stockbroker is trying to sell you a stock with a current market price of $54. The stock's last dividend (Do) was $1.45, and earnings and dividends are expected to increase at a constant growth rate of 12%. Your required return on this stock is 15%. From a strict valuation standpoint, you should: A. Buy the stock; it is fairly valued. B. Buy the stock; it is undervalued by $5.67 C. Buy the stock; it is undervalued by $.13. D. Not buy the stock; it is overvalued by $5.67 E. Not buy the stock; it is overvalued by $.13
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