Revisit Later Question 2: (5 marks) co:p> 0:p> An analyst uses the security market line (SML) to determine if stocks are undervalued or overvalued. He recently conducted an analysis mid-cap company, named Apollo Tractor Supplies (ATS). He calculated the expected return of ATS and for the broad market index:

Forecasted return for ATS =10% Standard deviation for ATS = 15% Expected return on the stock market index = 12%

Standard deviation on the stock market index = 20%

Correlation between ATS and stock market index = 0.60

Risk-free rate = 6%

Determine the fair value of ATS using SML framework of analysis and decide the stock is overvalued and undervalued.

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