1. Pepcico Inc. has a beta of 0.59. The risk-free rate is 2% and the market risk premium is 6%. What is the required rate of return of Pepcico? Round to the nearset hundredth percent. Answer in the percent format. Do not include % sign in your answer (i.e. If your answer is 4.33%, type 4.33 without a % sign at the end.)

2.

You are analyzing a common stock with a beta of 0.8. The risk-free rate of interest is 3 percent and the market risk premium is 10 percent. If the stock's return based on its market price is 11 percent, is the stock over, under or correctly valued?

a.) It is undervalued since the expected return is above the SML.

b.) It is undervalued since the expected return is below the SML.

c.) It is overvalued since the expected return is above the SML.

d.) It is overvalued since the expected return is below the SML.

e.) It is correctly valued since the expected return is on the SML.