Your sister-in-law, a stockbroker at Invest Inc., is trying to sell you a stock with a current market price of $26. The stock's last dividend (D0) was $2.00, and earnings and dividends are expected to increase at a constant growth rate of 10 percent. Your required return on this stock is 20 percent. From a strict valuation standpoint, you should:
a. Buy the stock; it is fairly valued.
b. Buy the stock; it is undervalued by $3.00.
c. Buy the stock; it is undervalued by $2.00.
d. Not buy the stock; it is overvalued by $4.00.
e. Not buy the stock; it is overvalued by $3.00.