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、 is overvalued.
B、 is undervalued.
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: (P ₁ -P ₀ +D ₁ )/P ₀ , 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.