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  3. you discover an investment costing $500 which has

You discover an investment costing $500 which has an expected total return of 12% pa,...

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Accounting

You discover an investment costing $500 which has an expected total return of 12% pa, but a required return of only 10% pa. Of the 12% pa total expected return, the capital return is expected to be 7% pa. Assume that the required return of 10% remains constant, the dividends can only be re-invested at 10% pa and all returns are given as effective annual rates. Which of the following statements is NOT correct? a. When plotted on the Security Market Line, the investment would plot below the SML. b. The expected dividend return is 5% c. The investments price at time t=20 would be $1,934.842 d. You would use a discount rate of 10% to find the NPV of this investment e. The investment is currently under-priced

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