The expected market return, Rm = 12%. The expected return on a risk-free asset, Rf = 5%.
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The expected market return, Rm = 12%. The expected return on a risk-free asset, Rf = 5%.
1. Stock A has a beta of 0.8. What is the expected return of stock A according to CAPM? If stock A offers an actual return of 7%, is stock A overvalued or undervalued?
2. Stock B offers a return of 15%. If stock B is correctly priced by CAPM, what is the beta of Stock B?
3. Project C has a forecasted return of 7% and a beta of 0.6. Should we accept project C? Why?
Related Book For
Statistics For Business Decision Making And Analysis
ISBN: 9780321890269
2nd Edition
Authors: Robert Stine, Dean Foster
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