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1. Currently, the risk-free rate is 10 percent and the expected return on the market portfolio is 15 percent. Market analysts' return expectations for four
1. Currently, the risk-free rate is 10 percent and the expected return on the market portfolio is 15 percent. Market analysts' return expectations for four stocks are listed here, together with each stock's expected beta. EXPECTED STOCK EXPECTED BETA RETURN 1. Stillman Zinc Corporation 17% 1.4 2. Union Paint Company 14% 0.8 3. National Automobile 15% 1.2 Company 4. Parker Electronics, Inc. 18% 1.6 If the analysts' expectations are correct, which stocks (if any)are overvalued? Which (if any) are undervalued? (Hint: the expected return is the return based on the observed market price.)
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