Determine rate of return for new castle common stock

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Reference no: EM131338622

New Castle Company common stock has a beta of 1.50. The stock currently pays a dividend of $3 per share. The risk-free rate is 8 percent, and the market risk premium is expected to be 8.0 percent. The returns from New Castle stock are normally distributed with an expected value of 24 percent and a standard deviation of 12 percent.

a. Determine the required rate of return for New Castle's common stock.

b. Determine the probability that the stock of New Castle is undervalued at its current market price of $25 per share.

Reference no: EM131338622

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