Under/Over Valued Stock A manager believes his firm will earn a 17.2 percent return next year. His firm has a beta of 1.62, the expected return on the market is 15.2 percent, and the risk-free rate is 5.2 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.

21.4%, over-valued

25.624%, under-valued

25.624%, over-valued

21.4%, under-valued