Jersey Jewel Mining has a beta coefficient of 1.2. Currently, the risk-free rate is 2% and the anticipated return on the market is 8%. JJM pays a $4.50 dividend that is growing at 4% 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 $100, what should you do?
d. If the beta coefficient declines to 1.0, what is the new value of the stock?
e. If the price remains $100, what course of action should you take given the valuation in d?