Value and Returns A stock has an expected dividend yield of 3.2% a price today o
ID: 2805084 • Letter: V
Question
Value and Returns A stock has an expected dividend yield of 3.2% a price today of $27 and an expected sale price in one year of $28. The stock has a beta of 1.1 and the expected return on the market is 13% while the risk free rate is 4%. This stock is _____________ by ________ basis points.
Value and Returns A stock has an expected dividend yield of 3.2% a price today of $27 and an expected sale price in one year of $28. The stock has a beta of 1.1 and the expected return on the market is 13% while the risk free rate is 4%. This stock is _____________ by ________ basis points.
Explanation / Answer
Answer) Expected return of stock = 4% + 1.1 *(13%-4%) = 13.90%
Dividend = 3.2%*27 = 0.864
Stock total returns = (28 - 27 + 0.864) / 27 =6.90%
Answer:- The stock is undervalued by 690 basis points
Related Questions
Navigate
Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.