You are researching GT inc stock. You have assembled the following information and assumptions.
Current Assumptions:
Current share price = $15.90
Your Estimate of GT's intrinsic value is $17.25
Over the course of one year, you expect the misprice of GT to be fully corrected, you forecast additional price appreciation of $1.22 per share over the course of the year as well as the payment of a cash dividend of $.50
T-bills rate = 3.2%, Market beta = 1.2, Size beta = .5, value beta = .2, equity premium = 4.5, size premium = 2.7, value premium = 4.3
Answer the following questions:
1. State whether GT shares are overhauled, fairly valued, or undervalued, based on your forecast.
2. Calculate the one-year holding-period return on GT stock.
3. Calculate the expected ALPHA for GT stock.