Landon Stevens is evaluating the expected performance of two common stocks, Furhman Labs, Inc., and Garten Testing, Inc. The risk-free rate is 4.0 percent, the expected return on the market is 121 percent, and the betas of the two stocks are 1.2 and .9, respectively.Landon's own forecasts of the returns on the two stocks are 14.40 percent for Furhman Labs and 11.10 percent for Garten.a. Calculate the required return for each stock. (Do not round Intermediate calculations. Enter your answers as a percent rounded to2 decimal places.)StockRequired ReturnFurhman LabsGarten Testing%%b. Is each stock undervalued, fairly valued, or overvalued?Furhman LabsUndervaluedOvervaluedFair valuedGarten TestingOvervaluedUndervaluedFair valued

The required rate of return is the minimum return that an investor is expecting to receive for their…

a. Calculate the required return for each stock. (Do not round Intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Stock Required Return % Furhman Labs Garten Testing b. Is each stock undervalued, fairly valued, or overvalued?

a. Calculate the required return for each stock. (Do not round Intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Stock Required Return % Furhman Labs Garten Testing b. Is each stock undervalued, fairly valued, or overvalued?

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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Question

Landon Stevens is evaluating the expected performance of two common stocks, Furhman Labs, Inc., and Garten Testing, Inc. The risk-
free rate is 4.0 percent, the expected return on the market is 121 percent, and the betas of the two stocks are 1.2 and .9, respectively.
Landon's own forecasts of the returns on the two stocks are 14.40 percent for Furhman Labs and 11.10 percent for Garten.
a. Calculate the required return for each stock. (Do not round Intermediate calculations. Enter your answers as a percent rounded to
2 decimal places.)
Stock
Required Return
Furhman Labs
Garten Testing
%
%
b. Is each stock undervalued, fairly valued, or overvalued?
Furhman Labs
Undervalued
Overvalued
Fair valued
Garten Testing
Overvalued
Undervalued
Fair valued

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