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SHOW WORK ON EXCEL PLEASE Here is data on two companies. The 10-year Treasury Note rate (Risk-Free rate) is 4% and the market risk premium

SHOW WORK ON EXCEL PLEASE

Here is data on two companies. The 10-year Treasury Note rate (Risk-Free rate) is 4% and the market risk premium is 7%.

Company Company 1 Company 2
Expected Return 14 % 18 %
Beta 1.6 1.2

  1. Estimate the required return for each company according to CAPM.
  2. Another company, Company 3, has a beta of 2.0. Estimate the expected rate of return for a portfolio consisting of 1/3 Company 1., 1/3 Company 2., and Company 3
  3. Comparing expected return and required rate of return according to CAPM, characterize each company as underpriced, overpriced, or properly priced.

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