Under/Over Valued Stock A manager believes his firm will earn a 11.20 percent return next year. His firm has a beta of 1.38, the expected return on the market is 8.8 percent, and the risk-free rate is 3.8 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.   Multiple Choice A. 10.70%, over-valued B. 10.70%, under-valued C, 15.944%, over-valued D. 15.944%, under-valued

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Under/Over Valued Stock A manager believes his firm will earn a 11.20 percent return next year. His firm has a beta of 1.38, the expected return on the market is 8.8 percent, and the risk-free rate is 3.8 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.

 

Multiple Choice

A. 10.70%, over-valued
B. 10.70%, under-valued
C, 15.944%, over-valued
D. 15.944%, under-valued
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