Stock Y is a stock with a growth rate comparable to the growth rate in the United States of 3%.
It is expected that this growth rate will continue indefinitely into the future. F is considering purchasing the stock. Using the capital asset pricing model, it is determined that the rate of discount for stock Y should be 10%. The most recent annual earnings were $5, 00 per share.
Calculate the price that reflects the fundamental value of the stock.(3) If the price is now $80 per share, should stock Y be purchased?(1)