Hello, I have attached my calculations, are they correct Now, you can find estimates of stock beta by logging on to finance yahoom and looking at a companys profile of three stock chosen Use the capital asset price model (CAPM) to estimate expected return of each stock You will need a figure for the current Treasury bill and you can find this also on finance yaho com by clocking on Bonds Rates You can use 30 year or 10 year bond as a risk free rate since stocks are long term investment Assume that the market risk premium of 7 Compare the expected return of three stocks based on CAPM with the average returns you obtained Which stock(s) is (are) overvalued or undervalued Why Fill in the following table based on the numbers you calculated Stock CAPM Return (Need to Calculate) , , Average Returns Over Under Correctly Priced Recommendations (From Table 1) (Buy Sell) Walmart 0 627778 0 8081 Mcdonalds 0 563273 1 0438 Costco 0 889870 1 3157 MY ANSWER is below is it correct STOCKS CAPM RETURN (Re) ( ) AVERAGE RETURNS (ER) ( ) STATUS RECOMMENDATIONS WALMART 62 7778 80 81 ER Re HENCE STOCK IS UNDERPRICED INVESTOR SHOULD BUY THE STOCK MCDONALDS 56 3273 104 38 ER Re HENCE STOCK IS UNDERPRICED INVESTOR SHOULD BUY THE STOCK COSTCO 88 9870 131 57 ER Re HENCE STOCK IS UNDERPRICED INVESTOR SHOULD BUY THE STOCK

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Posted on Oct 06, 2024

Hello, I have attached my calculations, are they correct?

Now, you can find estimates of stock beta by logging on to finance yahoom and looking at a companys profile of three stock chosen. Use the capital asset price model (CAPM) to estimate expected return of each stock. You will need a figure for the current Treasury bill and you can find this also on finance.yaho.com by clocking on Bonds-Rates. You can use 30-year or 10-year bond as a risk-free rate since stocks are long-term investment. Assume that the market risk premium of 7%.

Compare the expected return of three stocks based on CAPM with the average returns you obtained. Which stock(s) is (are) overvalued or undervalued? Why? Fill in the following table based on the numbers you calculated.

Stock	CAPM Return (Need to Calculate)	>, =, <	Average Returns	Over/Under/Correctly Priced	Recommendations
			(From Table 1)		(Buy/Sell)
Walmart	0.627778		0.8081

Mcdonalds	0.563273		1.0438

Costco	0.889870		1.3157

MY ANSWER is below is it correct?????

STOCKS	CAPM RETURN (Re) (%)	AVERAGE RETURNS (ER) (%)	STATUS	RECOMMENDATIONS
WALMART	62.7778	80.81	= ER>Re HENCE STOCK IS UNDERPRICED	INVESTOR SHOULD BUY THE STOCK
MCDONALDS	56.3273	104.38	= ER>Re HENCE STOCK IS UNDERPRICED	INVESTOR SHOULD BUY THE STOCK
COSTCO	88.9870	131.57	= ER>Re HENCE STOCK IS UNDERPRICED	INVESTOR SHOULD BUY THE STOCK