Information.

]The risk-free rate of return (rf ) is 2% and the expected market rate of return (rm) is 10%. The shares A, B and C all pay a dividend (D) of $6 a year. The betas for the three shares are A = 0.75 and B = 1.00 and C = 1.25 . The three shares are trading at the same price (P) of $60.

Requirements.

Answer the following questions:

Q1. What are the expected returns on A, B and C?

Q2. What are the expected prices of A, B and C?

Q3. What action would you recommend for A?

Q4. What action would you recommend for B? Q5. What action would you recommend for C?