单选题 An analyst wants to determine whether Dover Holdings is overvalued or undervalued, and by how much (expressed as percentage return). The analyst gathers the following information on the stock: Market standard deviation=0.70 Covariance of Dover with the market=0.85 Dover's current stock price (P₀)=$ 35.00 The expected price in one year (P₁) is $ 39.00 Expected annual dividend=$1.503-month Treasury bill yield=4.50%. Historical average S＆P 500 return=12.0%. Dover Holdings stock is:

A、

A. undervalued by approximately 2.1%.
B、

B. overvalued by approximately 1.8%.
C、

C. undervalued by approximately 1.8%.

【正确答案】 B

【答案解析】
Calculate the one-year holding period return:
HPR=(D₁+S₁-S₀)/S0=(1.50+39-35)/35=15.71%
Calculate the required return is from the CAPM:
Beta_stock=[cov_S.M]/[σ^2M]=0.85/0.70²=1.73.
RR=4.50%+(12.0-4.50%)×1.73=17.48%.
Determine over/under valuation:
The required return is greater than the expected return, so the security is overvalued. The amount=17.48%-15.71%=1.77%.