Question

The expected return of Microsoft stock is 14% and it is undervalued. A possible required rate of return of it is

Select one:

a. Not enough info is given

b. -5%

c. 12%

d. 13%

e. 10%

Answer 1

Expected Return on the stock of Microsoft is 14% and it is declared to be undervalued. In this case, it can be said that the stock is undervalued if the price is quoting much below its intrinsic value. Rates also determine the valuation of the stock, but in this case, the comparison cannot be made as the price or the return of the stock of Microsoft cannot be compared with anything else. So the correct option would be (a) which states that “Not enough info is given”.