Tangshan China's Stock Is Currently Selling for $160

question 175

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 return is 8 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:

Equation

An assertion that two expressions are equal, frequently involving one or more variables.

Find Slope

The process of determining the steepness or incline of a line, calculated as the ratio of the vertical change to the horizontal change between two points on the line.

Passing Through

A term used to indicate that a line or curve intersects or goes exactly through a specific point or points on a graph.

Depreciated Value

The reduced value of an asset over time due to wear and tear, obsolescence, or aging.