Using an expected return of 10.1% per year, you recently estimated the fair value of Zenon-5’s common stock to be $44.12 per share. You also noticed that the stock is currently trading at a price of $32.85 per share. Given the expected annuity stream of cash dividends, and the current trading price of the stock, you’ve estimated that if the stock was purchased today and held for 8 years, the IRR would be 14.39% per year. Determine the degree of mispricing associated with the stock. Provide an answer as a percentage, not as a decimal, with at least 4 digits of precision.

b) In an attempt to estimate the beta of Stock X, you recently ran a market model regression (in Excel). Excel reported a host of output variables such as alpha, beta and R-squared. The estimate of beta was 1.11. You also determined that the annualized volatility of the broad stock-market was 17.6%, and the annualized volatility of Stock X was 50.5%.

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Determine the value of R-squaredthat was reported by Excel.

Provide an answer as a percentage, not as a decimal, using at least 4 digits of precision.


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