You got a high-paying job as a security analyst for a hedge fund. Your employer wants your opinion about XWZ common stock which currently sells for $92.50 per share and which recently paid a dividend of $3.95 per share. In ten years dividends per share have grown steadily from $2.4 to $3.95. You believe that dividends will continue to grow at the same rate for the indefinite future. He only tells you that he requires a rate of return of 12.5%. You opine that,
the stock is overpriced, and that he should not pay more than $69.76
the stock is overpriced, and that he should not pay more than $89.76
the stock is underpriced, and that it should be selling for $99.76
the stock is underpriced, and that it should be selling for $95.76
the stock is overpriced, and that he should not pay more than $56.18.