Question
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) is undervalued? (Hint: You need to calculate the required return on each stock. Show all of your calculations with appropriate explanation.
*If the risk-free rate were suddenly to rise to 12 percent and the expected return on the market portfolio to 16 percent, which stocks (if any) would be overvalued? Which (if any) undervalued? (Assume that the market analysts return and beta expectations for our four stocks stay the same.) i want explaination of stocks 'how can we find the stock is over or under valued any its over or under value.
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