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A manager believes his firm will earn a 17.5 percent return next year. His firm has a beta of 1.65, the expected return on the
A manager believes his firm will earn a 17.5 percent return next year. His firm has a beta of 1.65, the expected return on the market is 15.5 percent, and the risk-free rate is 5.5 percent. Compute the return the firm should earn given its level of risk and determine whether the manager is saying the firm is under-valued or over-valued.
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