You are evaluating the expected performance of two stocks, Alibaba and Bank of China. You gathered the following information Risk-free rate = 5% Expected return for a Hong Kong market = 11.5% Beta of Alibaba = 1.5 Beta of Bank of China = 0.8 Based on your analysis, you forecast the return on these 2 stocks are 13.25% for Alibaba and 11.25% for Bank of China. i) Calculate the required rate of return for Alibaba and Bank of China ii) Indicate whether each stock is undervalued, fairly valued or overvalued.
You are evaluating the expected performance of two stocks, Alibaba and Bank of China. You gathered the following information Risk-free rate = 5% Expected return for a Hong Kong market = 11.5% Beta of Alibaba = 1.5 Beta of Bank of China = 0.8 Based on your analysis, you forecast the return on these 2 stocks are 13.25% for Alibaba and 11.25% for Bank of China. i) Calculate the required rate of return for Alibaba and Bank of China ii) Indicate whether each stock is 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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You are evaluating the expected performance of two stocks, Alibaba and Bank of China.
You gathered the following information
Risk-free rate = 5%
Expected return for a Hong Kong market = 11.5%
Beta of Alibaba = 1.5
Beta of Bank of China = 0.8
Based on your analysis, you
11.25% for Bank of China.
i) Calculate the required
ii) Indicate whether each stock is undervalued, fairly valued or overvalued.
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