Under/Over Valued Stock A manager believes his firm will earn a 10.45 percent return next year. His
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Question:
Under/Over Valued Stock A manager believes his firm will earn a 10.45 percent return next year. His firm has a beta of 1.33, the expected return on the market is 8.3 percent, and the risk-free rate is 3.3 percent. Compute the return the firm should earn given its level of risk and determine whether the manager is saying the firm is under-valued or over-valued.
14.339%, over-valued
14.339%, under-valued
9.95%, over-valued
9.95%, under-valued
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