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Question 5: Exhibit 5.1 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Stocks A, B, and C have two risk factors with the following beta

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Question 5: Exhibit 5.1 USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Stocks A, B, and C have two risk factors with the following beta coefficients. The zero-beta return (lo) = .025 and the risk premiums for the two factors are (11) = 12 and (lo) = .10. Stock Factor 1 bit Factor 2 biz A -0.25 1.1 -0.05 0.9 0.01 0.6 a. Refer to Exhibit 5.1. Calculate the expected returns for stocks A, B, C. b. Refer to Exhibit 5.1. Assume that stocks A, B, and C never pay dividends and stocks A, B, and C are currently trading at $10, $20, and $30, respectively. What is the expected price next year for each stock? c. Refer to Exhibit 5.1. Suppose that you know that the prices of stocks A, B, and C will be $10.95, $22.18, and $30.89, respectively. Based on this information, comment which stock will be undervalued, overvalued, or properly valued. Support your answer with adequate reasoning

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