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Assume the risk-free rate is 2% and the expected rate of return on market is 10%. If stock A has a market beta of 1.5,
- Assume the risk-free rate is 2% and the expected rate of return on market is 10%. If stock A has a market beta of 1.5, what is its expected return according to the Capital Asset Pricing Model (CAPM)?
- If stock A actually yields 20% return, what is its alpha? Is stock A overvalued, undervalued, or correctly priced according to CAPM? Explain.
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Business Forecasting
Authors: John E. Hanke, Dean Wichern
9th edition
132301202, 978-0132301206
