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What is the expected return on Stock ABC

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Question - Stock ABC is currently selling for $18.72. It has just paid an annual dividend of $0.90 per share, which is expected to grow at 5% indefinitely. The risk-free rate is 4%. The expected return on the market portfolio is 15% with a standard deviation of 17%. Based on that, answer the following:

-What is the expected return on Stock ABC? 

-Is Stock ABC overpriced, underpriced, or correctly priced, if it has a beta of 0.6? 

-Is Stock ABC above, below, or on the SML?

-What is the equilibrium price of Stock ABC, assuming the dividend growth rate remains at 4.5%?

Reference no: EM133048132

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