The question requires to calculate the amount which I am willing to pay more for which the stock is

worth.

We are given: risk-free rate = 5%

Return on market = 10%

Beta considered= .8

This information can be used to get the expected return on the stock which will help us get the discount
rate for deriving the current price.

Using CAPM model we can derive,

E(r) = R (f) + β (Rm-R (f))

= .05+ .8(.10-.05)

= .09

Therefore, when beta is .8 the expected return turns out to be 9%.

Current price can be calculated as: Dividend / r

P0 = 2000/ 9% = Rs. 22,222

The same steps can be followed while calculating returns when beta is 1.6

E(r) = R (f) + β (Rm-R (f))

= .05+ 1.6(.10-.05)

= 0.13

Therefore, when beta is 1.6 the expected return turns out to be 13%.

Then current price turns out be 2000/ 13% = Rs 15,384

This shows that the actual price is less than calculated price and thus is undervalued. We can give
Rs.6838 more .