Math Solutions

[Solved] Firm K’s shares sell today for $45. It is forecast that the share price will be $51 at the end of one year. Also at that time a dividend of $2.50

Question: Firm K’s shares sell today for $45. It is forecast that the share price will be $51 at the end of one year. Also at that time a dividend of $2.50 is expected to be paid. Firm K’s β is 0.87, the riskless return is 3 % and the market risk premium is 7 %. Is firm K correctly priced, overpriced, or underpriced. Support your answer with calculations and explanation.

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