Question

Jersey Jewel Mining has a beta coefficient of 1.7. Currently the 10 percent annually. Do not round intermediate calculations free rate is 1 percent and the antipated return on the market percent. pays a $3.60 duidend that is gone a. What is the required return for 11M2 Round your answer to two decimal places b. Given the required retum, what is the value of the stock Round your answer to the nearest cent c. If the stock is selling for $102, what should you do? The stock Select overvalued and select be purchased. d. If the beta coefficient declines to 1.6, what is the new value of the stock Round your answer to the ne e. If the price remains $102, what course of action should you take given the valuation in The stock is select and lot be purchas

Answer 1

1.
required return=risk free rate+beta*(market return-risk free rate)
=1%+1.7*(9%-1%)
=14.600%

2.
Price=Past Dividend*(1+g)/(required return-growth rate)
=3.60*1.1/(14.600%-10%)
=86.08695652174

3.
Stock is overvalued

4.
Should not

5.
=3.60*1.1/(1%+1.6*(9%-1%)-10%)
=104.21052631579

6.
Undervalued

7.
Should