Jersey Jewel Mining has a beta coefficient of 1.2. Currently therisk-free rate is 5 percent and the anticipated return on the market is 11 percent. JJM pays a$4.50 dividend that is growing at 6 percent annually.
a. What is the required return for JJM?
b. Given the required return, what is the value of the stock?
c. If the stock is selling for $80, what should you do?
d. If the beta coefficient declines to 1.0, what is the new valueof the stock?
e. If the price remains $80, what course of action should you takegiven the valuation in (d)?