Beta and Value A firm is expected to pay an annual dividend of $.50 next year. After next year the firm’s dividends will grow at a steady state rate of 4% per year. You are trying to value the stock and Value Line lists a stock beta of .99 while Yahoo is reporting a beta of .88. The stock is currently priced at $12.50. If E(RM) – Rf = 7.2% and the risk free rate is 2.3% the stock is ____________________ if you use the Value Line beta and is ____________________ if you use the Yahoo beta.
a) overpriced by $1.71; overpriced by $3.29
b) overpriced by $3.29; overpriced by $1.71
c) underpriced by $1.25; underpriced by $1.55
d) underpriced by $1.55; underpriced by $1.25