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A company whose stock generated 12% of actual annual return. Its beta is 2. We assume an average market risk premium is 4%. Treasury bond

A company whose stock generated 12% of actual annual return. Its beta is 2. We assume an average market risk premium is 4%. Treasury bond rate (risk free rate) is 6%. An average market index return (annual) is 10%. (20 points)

(1) What is an expected/required rate of return of the stock under CAPM (Capital Asset Pricing Model)?

(2) Is stock price of Fin 602 overvalued or undervalued?

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