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Presently, the risk-free rate is 10 percent (Rf )and the expected return on the market portfolio (E(Rm))is 15 percent. Market analysts return expectations for four
Presently, the risk-free rate is 10 percent (Rf )and the expected return on the market portfolio (E(Rm))is 15 percent. Market analysts return expectations for four stocks are listed here, together with each stocks expected beta
If the analysts expectations are correct, which stocks (if any) are overvalued? Which (if any) are undervalued?
Show all of your calculations with appropriate explanation
Expected | Expected | Required | Choose | ||
Stock | Return | Beta | Return (CAPM) | Under? Over? Or Correctly Priced? | |
1.Stillman Zinc Corp. | 17.00% | 1.3 | |||
2.Union Paint Co. | 14.5 | 0.8 | |||
3.National Auto Co. | 15.5 | 1.1 | |||
4.Parker Electronics, Inc | 18 | 1.7 |
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