Anurag has screened some stocks for investment basis their profits and growth. However he is not...

Anurag has screened some stocks for investment basis their profits and growth. However he is not able to decide if he should invest in these at the current market rates. You are required to advise him regarding his selected stocks basis the available information. Mask Ltd is currently trading at Rs 525 and expected to yield a return of 8%, has a beta of 11 Sanitizer Ltd which trades at Rs 65 and is expected to yield 12% return, has a beta of 1.3. Quarantine Ltd having a beta of 1.2 is trading at Rs 128 and would deliver a return of 9%. Virus Ltd currently commanding a rate of Rs 1998 may deliver 7% return and has a beta of 0.7. The return on the long term Government bonds is 3.5% and the market risk premium is 5%.

You are required to help Anurag plot the stocks on SML and advise if he should invest in his chosen stocks. Please show appropriate calculations and interpretation to support your advice.

please try to give answer within 1Hr

Expert Solution

1. The Mask Ltd is overvalued thus do not invest in mask Ltd

2. Invest in Sanitizer as it is underpriced

3. Invest in Quarantine and Virus Ltd as they both are fair priced

*if Expected return is less than CAPM Return the stock is overvalued and viceversa

jeff jeffy answered 2 years ago

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