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Here are data on two companies. The T-bill rate is 4% and the market risk premium...

Here are data on two companies. The T-bill rate is 4% and the market risk premium is 6%.

  Company $1 Discount Store Everything $5
Forecast return 12% 11%
Standard deviation of returns 8% 10%
Beta 1.5 1.0


Based on the fair return and according to the capital asset pricing model (CAPM), is each firm properly priced?

Company Expected Return
$1 Discount Store (Click to select)Properly pricedUnderpricedOverpriced %
Everything $5 (Click to select)UnderpricedProperly pricedOverpriced %

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Expert Solution

ekkarill92 answered 2 years ago
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