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A stock is in equilibrium if its expected return its required return. In general, assume that markets and stocks are in equilibrium (or fairly valued), but sometimes investors have different opinions about a stock's prospects and may think that a stock is out of equilibrium (either undervalued or overvalued). Based on the analyst's expected return estimates, Stock A is, Stock B is, and Stock C is in equilibrium and fairly valued. 16 14 12 RATE OF RETURN (Percent) ° ← 2 ° t + 0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 RISK (Beta) Stock A Stock B Stock C

A stock is in equilibrium if its expected return its required return. In general, assume that markets and stocks are in equilibrium (or fairly valued), but sometimes investors have different opinions about a stock's prospects and may think that a stock is out of equilibrium (either undervalued or overvalued). Based on the analyst's expected return estimates, Stock A is, Stock B is, and Stock C is in equilibrium and fairly valued. 16 14 12 RATE OF RETURN (Percent) ° ← 2 ° t + 0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 RISK (Beta) Stock A Stock B Stock C

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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A stock is in equilibrium if its expected return its required return. In general, assume that markets and stocks are in equilibrium (or fairly valued), but sometimes investors have different opinions about a stock's prospects and may think that a stock is out of equilibrium (either undervalued or overvalued). Based on the analyst's expected return estimates, Stock A is, Stock B is, and Stock C is in equilibrium and fairly valued. 16 14 12 RATE OF RETURN (Percent) ° ← 2 ° t + 0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 RISK (Beta) Stock A Stock B Stock C
Transcribed Image Text:A stock is in equilibrium if its expected return its required return. In general, assume that markets and stocks are in equilibrium (or fairly valued), but sometimes investors have different opinions about a stock's prospects and may think that a stock is out of equilibrium (either undervalued or overvalued). Based on the analyst's expected return estimates, Stock A is, Stock B is, and Stock C is in equilibrium and fairly valued. 16 14 12 RATE OF RETURN (Percent) ° ← 2 ° t + 0 0.2 0.4 0.6 0.8 1.0 1.2 1.4 1.6 1.8 2.0 RISK (Beta) Stock A Stock B Stock C
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