Question
uppose firm F has a beta of 0.8 and the expected return of the market is 7%, and the risk-free rate is 1%. According to
uppose firm F has a beta of 0.8 and the expected return of the market is 7%, and the risk-free rate is 1%. According to the CAPM, these three numbers determine the expected return of the firm. Now you estimate the future cash flows of the firm, and when you compare your estimate to the current market price of F, you conclude that the expected return of firm F is 8%. Then (according to CAPM)
Group of answer choices
you believe that F is overvalued
you believe that F is fairly valued
you believe that F is undervalued
You are a nihilists. There's nothing to be afraid of.
none of the above
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