Problem 7 02 You expect an RFR of 9 percent and the market return ( R M ) of 14 percent Compute the expected return for the following stocks Round your answers to two decimal places Stock Beta E(R i ) U 0 70 N 1 15 D 0 25 You ask a stockbroker what the firms research department expects for these three stocks The broker responds with the information below Indicate what actions you would take with regard to these stocks Round your answers to two decimal places Stock Current Price Expected Price Expected Dividend Estimated Return Evaluation U 30 32 1 05 Select UndervaluedProperly valuedOvervaluedItem 6 N 44 46 2 15 Select UndervaluedProperly valuedOvervaluedItem 8 D 40 43 1 25 Select UndervaluedProperly valuedOvervaluedItem 10 If you believe the appropriateness of these estimated returns, you would buy Select (stock U stock N stock D stocks U and N stocks U and D stocks N and D) and sell Select (stock U stock N stock D stocks U and N stocks U and D stocks N and D)

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Problem 7-02 You expect an RFR of 9 percent and the market return ( R M ) of 14 percent. Compute the expected return for

Problem 7-02

You expect an RFR of 9 percent and the market return (R_M) of 14 percent. Compute the expected return for the following stocks. Round your answers to two decimal places.

Stock Beta E(R_i)

U 0.70 %

N 1.15 %

D -0.25 %

You ask a stockbroker what the firms research department expects for these three stocks. The broker responds with the information below. Indicate what actions you would take with regard to these stocks. Round your answers to two decimal places.

Stock	Current Price	Expected Price	Expected Dividend	Estimated Return	Evaluation
U	30	32	1.05	%	-Select-UndervaluedProperly valuedOvervaluedItem 6
N	44	46	2.15	%	-Select-UndervaluedProperly valuedOvervaluedItem 8
D	40	43	1.25	%	-Select-UndervaluedProperly valuedOvervaluedItem 10

If you believe the appropriateness of these estimated returns, you would buy -Select- (stock U stock N stock D stocks U and N stocks U and D stocks N and D) and sell -Select- (stock U stock N stock D stocks U and N stocks U and D stocks N and D).