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Given the following information for Stock E:
P = $40, P = $43.50, D = $1.10
= 0.93, R = 1%, Market Risk Premium = 5%
a. What is the expected return on stock E based on the expected future cash flows?
b. What is the required return based on the CAPM?
c. Is stock E undervalued, correctly priced, or overvalued?
Assume you have been asked by an investor, age 35, who wishes to invest in conservative stocks that will provide some income now but is mainly interested in growth over the ne
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