The ABC Corporation's stock has following data:
It recently paid a dividend in the amount of $5.54
It has an expected growth rate in earnings and dividends of 7.74%
The Expected rate of return for the stock is 18.75%
Based on the CAPM, the required return for the stock is 15.36%
Since the expected return does not equal the required return, the stock is mispriced.
Determine the:
Po based on expected return
Po based on required return
Difference is amount of undervaluation