Under/Over-Valued Stock A manager believes his firm will earn a 7.5 percent return next year. His firm has a beta of 2, the expected return on the market is 5 percent, and the risk-free rate is 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.

8%, over-valued
	8%, under-valued
	12%, over-valued
	12%, under-valued