1. You are analyzing a common stock with a beta of 1.5. The risk-free rate of...

1. You are analyzing a common stock with a beta of 1.5. The risk-free rate of interest is 5 percent and the market risk premium is 10 percent. If the stock's expected return based on its market price is 19.5%,

the stock is overvalued since the expected return is above the SML.
the stock is undervalued since the expected return is above the SML.
the stock is correctly valued since the expected return is above the SML.
the stock is overvalued since the expected return is below the SML.
the stock is undervalued since the expected return is below the SML.

2. A stock has a beta of 1.25. The risk-free rate is 3% and the market return is 9%. What is the required rate of return for the stock? Round to the nearset hundredth percent. Answer in the percent format. Do not include % sign in your answer (i.e. If your answer is 4.33%, type 4.33 without a % sign at the end.)

Expert Solution

jeff jeffy answered 1 year ago

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