A. An investor should be indifferent toward buying or selling the stock because its required rate of return is equal to its expected rate of return, 11.69 percent.
B. An investor should not buy this stock because its expected rate of return, 9.6 percent, is greater than its required rate of return, 11.69 percent.
C. An investor should not buy this stock because its intrinsic value, $44.64, is greater than its current price of $32.50.
D. An investor should not buy this stock because its current price, $32.50, is not equal to its intrinsic value, $44.64.
E. An investor should buy this stock because its expected rate of return, 11.69 percent, is greater than its required rate of return, 9.6 percent.
ANSWER:
E. An investor should buy this stock because its expected rate of return, 11.69 percent, is greater than its required rate of return, 9.6 percent.