Stephen Used the Dividend Discount Model to Determine That the Price

question 52

Multiple Choice

Stephen used the dividend discount model to determine that the price of a stock should be $23.50. Stephen checks on the internet and finds the latest price quoted for the stock is $27.00. What should he do?

• A) Buy the stock at $27.00
• B) Sell the stock at $27.00, or sell short if he does not own it
• C) Do nothing, as his estimate of the intrinsic value may be off as much as 15%
• D) Buy the stock at $23.50 because that is all it is worth

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