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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 |
- Estimate the required return for each company according to CAPM.
- 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
- Comparing expected return and required rate of return according to CAPM, characterize each company as underpriced, overpriced, or properly priced.
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