Based on this financial info where a company's Beta Year = 2008, the Company's commons stock = 0.85, the Risk-Free Rate of Return = 5%, and the Market Risk Premium = 6%. Use the dividend growth model to calculate the Company's Common Stock in 2008. Stock 1 = 1.5, Stock 2 = 0.27, Stock 3 = 1.1, Stock 4 = 2.15, Stock 5 = -0.5.
Which stock is undervalued, overvalued, or fully valued? Why?
11 years later . . .
To calculate the value of a common stock using the dividend growth model, you need to use the formula:
Value = Dividend / (Required Rate of Return - Dividend Growth Rate)
In this case, we don't have the dividend or the dividend growth rate for the company's common stock in 2008. Therefore, we cannot directly calculate the value of the stock.
The information provided about stock 1, stock 2, stock 3, stock 4, and stock 5 does not seem to be directly related to the company's common stock in 2008. So we cannot determine whether the company's common stock was undervalued, overvalued, or fully valued based on this information.
To assess whether a stock is undervalued, overvalued, or fully valued, you need to compare its market price with its intrinsic value, which can be estimated using various valuation methods like discounted cash flow analysis, comparables, or the dividend growth model.