Expected to increase at constant growth rate

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Reference no: EM131322860

Your sister-in-law, a stockbroker at Invest Inc., is trying to sell you a stock with a current market price of $26. The stock's last dividend (D0) was $2.00, and earnings and dividends are expected to increase at a constant growth rate of 10 percent. Your required return on this stock is 20 percent. From a strict valuation standpoint, you should:

a. Buy the stock; it is fairly valued.

b. Buy the stock; it is undervalued by $3.00.

c. Buy the stock; it is undervalued by $2.00.

d. Not buy the stock; it is overvalued by $4.00.

e. Not buy the stock; it is overvalued by $3.00.

Reference no: EM131322860

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