At present, the risk-free rate is 5% and the expected return on the market portfolio is 11%. The expected returns for four stocks are given below. On the basis of these expectations, which stock(s) is(are) overvalued and which undervalued? Why?

STOCK EXPECTED RETURN EXPECTED BETA

1.- Microtuff Corp .200 1.2

2.- House Depot .125 1.4

3.- First National Bank .100 0.8

4.- The Unlimited .116 1.1