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The expected return on the stock market is 10% with a standard deviation of 20%. The...

The expected return on the stock market is 10% with a standard deviation of 20%. The risk-free rate is 5%. UCW Co.'s common stock returns are 50% correlated with the overal market and its dividend next year will be $1.00/ share. The dividend's growth rate is 10% and standard deviation of UCW Co's shares is 70%. The stock is trading at $18.25/ share. Should the stock of UCW Co. be bought or sold?

Select one:

a. Bought (the stock is under-priced)

b. Neither bought or sold (the stock is fairly priced)

c. Sold (the stock is over-priced)

d. The stock should be bought if the dividend payout rate increases

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