Problem
You are thinking of investing in the shares of a publicly listed company. You expect the company to pay a $1.15 dividend over the next year and you believe you can sell your shares for $19.50 in one year.
1. If the required return on equity for this company is 9.5%, calculate the valuation for this company's shares today.
2. If the current market price of these shares is $12.50, what should you do? Why?