Here are the data on two companies. The T-bill rate is 4% and the market risk premium is 7.5%

Company	$2 Below Store	Everything $1 store
Forecasted Return	10%	12%
Standard Deviation of Return	6%	8%
Beta	1.1	0.85

Question

Saved

What would be the expected returns for each company, according to the CAPM?

Answer:

12.25% for $2 below store and 10.38% for Everything $1 store

Question:

Which of the following is correct regarding the company's stock value?

Question options:

	$2 below store is overvalued because the forecasted return is lower than CAPM return.
	$2 below store is undervalued because the forecasted return is lower than CAPM return.
	Everything $1 store is overvalued because the forecasted return is higher than CAPM return.
	Everything $1 store is undervalued because the forecasted return is equal to the CAPM return.