Suppose you want to invest in a stock but will only do so if it is mispriced by

Question

Suppose you want to invest in a stock but will only do so if it is mispriced by more than8%. The stock paid a dividend of $1.78 and expects growth of 3%. The firm had a required return of 7.5%. What is the key price point below which you would invest?
1. 37.54 2. 48.74 3. 32.74 4. 38.90 Suppose you want to invest in a stock but will only do so if it is mispriced by more than8%. The stock paid a dividend of $1.78 and expects growth of 3%. The firm had a required return of 7.5%. What is the key price point below which you would invest?
1. 37.54 2. 48.74 3. 32.74 4. 38.90
1. 37.54 2. 48.74 3. 32.74 4. 38.90

Explanation / Answer

The value of a stock as per the dividend discount model is:
Value of a stock (time 0) = Dividend (time 1)

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