SML-CAPM Question: Antigone Inc.paid Out a Dividend of $1.75,and Analysts Expect It

question 28

Essay

SML-CAPM Question:
Antigone Inc.paid out a dividend of $1.75,and analysts expect it to grow at 6% for the foreseeable future.The market rate is 17%,the T-Bill rate is quoted at 4%,and Antigone stock is selling at $15.50 (beta 1.2).Answer the following questions:
a) What is the expected return on Antigone stock?
b) Are Antigone shares overpriced, underpriced, or correctly priced?
c) Is Antigone stock above, below, or on the SML?
d) What is the equilibrium price of Antigone stock?

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Definitions:

Management Function

Essential activities including planning, organizing, leading, and controlling that are performed to achieve business objectives.

Planning

The process of making plans for something, often involving setting goals and determining the steps needed to achieve those goals.

Establish Objectives

The process of defining specific, measurable, achievable, relevant, and time-bound goals that an organization or individual aims to achieve.

Internal User

Individuals within an organization, such as management and employees, who use financial information for decision-making purposes.