An Issue of Ordinary Shares Currently Sells for $50

question 68

Multiple Choice

An issue of ordinary shares currently sells for $50.00 per share,has an expected dividend to be paid at the end of the year of $2.50 per share,and has an expected growth rate to infinity of 5% per year.If investors' required rate of return for this particular security is 12% per year,then this security is

• A)overvalued and offering an expected return higher than the required return.
• B)undervalued and offering an expected return higher than the required return.
• C)overvalued and offering an expected return lower than the required return.
• D)undervalued and offering an expected return lower than the required return.

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Definitions:

Fact-finding

A process of gathering and analyzing facts related to a specific issue or dispute, often used in arbitration, mediation, or policy-making to inform decisions and resolutions.

Nonbinding Recommendations

Advisories issued by an authority or organization that lack the power of enforceable law but aim to guide behavior or action.

Med-arb

A combination of mediation and arbitration, in which a dispute is first attempted to be resolved through mediation, and if unsuccessful, the same or a different neutral party conducts an arbitration.

Issue-by-issue

A method of dealing with problems or debates one topic at a time, instead of addressing all issues simultaneously.