Tangshan China's Stock Is Currently Selling for $160

question 103

Multiple Choice

Tangshan China's stock is currently selling for $160.00 per share and the firm's dividends are expected to grow at 5 percent indefinitely. In addition, Tangshan China's most recent dividend was $5.50. If the expected risk free rate of return is 3 percent, the expected market premium is 4 percent, and Tangshan has a beta of 1.2, Tangshan's stock would be ________.

• A) overvalued because the market price is higher than the resulting share value
• B) undervalued because the market price is less than the resulting share value
• C) overvalued because the resulting share value is higher than the market value
• D) undervalued because the resulting share value is less than the market value

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Definitions:

Biases

Inclinations or prejudices for or against one person or group, especially in a way considered to be unfair.

Evidence

Information or signs indicating whether a belief or proposition is true or valid.

Critical Thinkers

Individuals who actively engage in analysis, synthesis, evaluation, and reflection to make informed decisions or solve problems.

Assumptions

Beliefs or statements taken for granted without proof, often serving as the basis for further reasoning or arguments.