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A manager believes his firm will earn a return of 20.30 percent next year. His firm has a beta of 1.59, the expected return on

A manager believes his firm will earn a return of 20.30 percent next year. His firm has a beta of 1.59, the expected return on the market is 10.80 percent, and the risk-free rate is 2.80 percent. Compute the return the firm should earn given its level of risk. (Round your answer to 2 decimal places.)

Determine whether the manager is saying the firm is undervalued or overvalued.

  • undervalued

  • overvalued

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