Answer:
From there, we can determine if the stock is undervalued, overvalued, or fairly valued based on the calculated current price and the market price projected at the year end.
Explanation:
To calculate the expected rate of return using the dividend growth model, we can use the formula:
Given data:
- Dividends next year (D1) = Rs 12
- Expected price at year end = Rs 264
- Current price = Not provided, we need to calculate it using the expected rate of return formula.
Using the formula, we have:
Given that the investors' required rate of return is 15%, we can set the expected rate of return equal to 15% and solve for the current price:
Solving this equation will give us the current price of the stock.
From there, we can determine if the stock is undervalued, overvalued, or fairly valued based on the calculated current price and the market price projected at the year end.
