You are an analyst working in an Investment Fund specializing in the American Market. You are analyzing Meta (formerly Facebook) which has a beta of 1.18 and a required return of 11.3 percent.

A. What is the Beta telling you about the sector and the company? (Hint: What is the meaning of a beta above one.)

B. If the analysis follows the CAPM and the risk-free rate of return is 4.8 percent, what is the market risk premium and the market expected return for the USA market? Can equity risk premium change?

C. The current price is 213 $ and the average analyst target price is 228$ in one year. What is the expected return? Will the expected return be above or below the SML? What will be your recommendation with the information from this exercise?