XYZ company's common stock paid $2.50 in dividends last year. Dividends are expected to grow at a 12-percent annual rate forever. If XYZ's current market price is $40.00, and your required rate of return is 18 percent, should you purchase the stock?
No, the percentage return on the stock is too high, thus it is too risky.
Yes, the stock is expected to return more than you require.
No, the stock is overvalued
Not enough information is given.