1. A firm's common stock is currently selling for $50 per share. Its dividend payments and end of year stock prices, in each of the past 6 years are shown in the following table: Year Dividends Year end Stock Price 2020 $4.60 47.5 2019 4.20 45.6 2018 3.80 43.4 2017 3.40 44.1 2016 3.10 39.1 2015 2.85 30.1 To help you analyze better, additional information is also collected which are as follows: • Current Yields on 3-month U.S. Treasuries is 3.59% • Return on market portfolio is estimated around 8% • Beta coefficient is estimated to be 1.25 The dividends are expected to grow at a constant rate. Is this stock overvalued or undervalued? Support your answer with relevant calculations and arguments.
1. A firm's common stock is currently selling for $50 per share. Its dividend payments and end of year stock prices, in each of the past 6 years are shown in the following table: Year Dividends Year end Stock Price 2020 $4.60 47.5 2019 4.20 45.6 2018 3.80 43.4 2017 3.40 44.1 2016 3.10 39.1 2015 2.85 30.1 To help you analyze better, additional information is also collected which are as follows: • Current Yields on 3-month U.S. Treasuries is 3.59% • Return on market portfolio is estimated around 8% • Beta coefficient is estimated to be 1.25 The dividends are expected to grow at a constant rate. Is this stock overvalued or undervalued? Support your answer with relevant calculations and arguments.
Chapter2: The Domestic And International Financial Marketplace
Section: Chapter Questions
Problem 6P
Related questions
Question
![A firm's common stock is currently selling for $50 per share. Its dividend payments and end of year stock
prices, in each of the past 6 years are shown in the following table:
1.
Year
Dividends
Year end
Stock Price
2020
$4.60
47.5
2019
4.20
45.6
2018
3.80
43.4
2017
3.40
44.1
2016
3.10
39.1
2015
2.85
30.1
To help you analyze better, additional information is also collected which are as follows:
Current Yields on 3-month U.S. Treasuries is 3.59%
Return on market portfolio is estimated around 8%
• Beta coefficient is estimated to be 1.25
The dividends are expected to grow at a constant rate.
Is this stock overvalued or undervalued? Support your answer with relevant calculations and
arguments.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F37f9679f-04ca-4423-892a-3217d97fe358%2F79df9ab0-1836-428a-9c4c-457805c7489f%2Ftauncbm_processed.png&w=3840&q=75)
Transcribed Image Text:A firm's common stock is currently selling for $50 per share. Its dividend payments and end of year stock
prices, in each of the past 6 years are shown in the following table:
1.
Year
Dividends
Year end
Stock Price
2020
$4.60
47.5
2019
4.20
45.6
2018
3.80
43.4
2017
3.40
44.1
2016
3.10
39.1
2015
2.85
30.1
To help you analyze better, additional information is also collected which are as follows:
Current Yields on 3-month U.S. Treasuries is 3.59%
Return on market portfolio is estimated around 8%
• Beta coefficient is estimated to be 1.25
The dividends are expected to grow at a constant rate.
Is this stock overvalued or undervalued? Support your answer with relevant calculations and
arguments.
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