(a) Determine whether the following stock is overvalued or undervalued relative to the expected return below,...

  

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(a) Determine whether the following stock is overvalued or undervalued relative to the expected return below, given the risk-free rate (Rf) = 7% and the expected market return (E(rm)) = 15%. Information on the expected returns and expected betas are as follows: Stock AB CD EF GH IJ Expected Returns (%) 14 11 21 18 10 Expected Beta 0.72 0.93 1.11 Market Value (RM) 90,000 125,000 99,000 135,000 109,000 1.70 1.05 (b) An investment company manages an equity fund consisting of five stocks with the following market values and betas. Stock XY PQ ET VN TY Beta 0.70 1.05 0.90 0.48 1.11 (10) If risk-free rate (Rf) = 6% and expected market return (E(rm)) = 15%, what is the portfolio's expected return? (10) (a) Determine whether the following stock is overvalued or undervalued relative to the expected return below, given the risk-free rate (Rf) = 7% and the expected market return (E(rm)) = 15%. Information on the expected returns and expected betas are as follows: Stock AB CD EF GH IJ Expected Returns (%) 14 11 21 18 10 Expected Beta 0.72 0.93 1.11 Market Value (RM) 90,000 125,000 99,000 135,000 109,000 1.70 1.05 (b) An investment company manages an equity fund consisting of five stocks with the following market values and betas. Stock XY PQ ET VN TY Beta 0.70 1.05 0.90 0.48 1.11 (10) If risk-free rate (Rf) = 6% and expected market return (E(rm)) = 15%, what is the portfolio's expected return? (10)

Answer rating: 100% (QA)

a To determine whether a stock is overvalued or undervalued we calculate its required retu... View the full answer