单选题 Consider a stock selling for $ 23 that is expected to increase in price to $ 27 by the end of the year and pay a $ 0.50 dividend. If the risk-free rate is 4 percent, the expected return on the market is 8.5 percent, and the stock's beta is 1.9, what is the current valuation of the stock? The stock:

A、

A. is overvalued.
B、

B. is undervalued.
C、

C. is correctly valued.

【正确答案】 B

【答案解析】
The required return based on systematic risk is computed as: ER_stock = R_f + (ER_M - R_f) × Be - ta_stock, or 0.04+(0.085-0.04)×1.9=0.1255, or 12.6%. The expected return is computed as: (P₁-P₀+D₁)/P₀, or ($27-$23+$0.50)/$23=0.1957, or 19.6%. The stock is above the security market line ER ＞ RR, so it is undervalued.