Question
Exercise #3 (Slide 18) Within the context of the CAPM, assume: Expected Return on the market=12% Risk-free rate=4% Expected Return on the ABC stock=15% Beta
Exercise #3 (Slide 18) Within the context of the CAPM, assume: Expected Return on the market=12% Risk-free rate=4% Expected Return on the ABC stock=15% Beta on the ABC stock=1.25
(a) What is the ABC stocks fair expected rate of return according to CAPM?
(b) Is the stock underpriced, overpriced or fairly priced? How much is the alpha?
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Advanced Accounting
Authors: Joe Hoyle, Thomas Schaefer, Timothy Doupnik
10th edition
0-07-794127-6, 978-0-07-79412, 978-0077431808
