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The risk-free rate is currently 5.50%. In addition, you have the following information: Company Expected Return Beta Apple (AAPL) 9.15% 0.42 Orange LLC 15.59% ?
The risk-free rate is currently 5.50%. In addition, you have the following information: Company Expected Return Beta Apple (AAPL) 9.15% 0.42 Orange LLC 15.59% ? ? 1.53 Alpine Tanning Australian Snowplows 8.92% 0.91 Horseflies United 15.62% 1.20 A) You know that Apple (AAPL) is correctly priced because an army of analysts and thousands of institutional investors hold it. What does this tell you about the market risk premium that investors are pricing in? B) What beta for Orange LLC would make investor expectations consistent with your findings in part A)? C) Given the market risk premium in A), what is the correct expected return for Alpine Tanning? D) Given the market risk premium in A), are shares of Australian Snowplows overvalued, undervalued or fairly valued? O(No answer given) Ocorrectly valued Oundervalued Oovervalued E) Assume that the expected market return remains the same as before. What would the risk-free rate need to be in order for investors in Horseflies United to have correct return expectations
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