A RFR of 12% and the market return (RM) of 14% are expected by your portfolio manager. And the following data is related to three stocks of different companies.

Stocks	Beta
M	1.9
N	-0.3
O	1.9
P	1

Compute the expected return of the above stock by using CAPM. Moreover, your broker has the following expectations regarding the said stocks.

Stocks	Current Price ($)	Expected Price ($)	Dividends ($)
M	60	64	1.5
N	44	38	0.80
O	44	50	2.5
P	40	45	2

You are required to determine the undervalued and overvalued stocks. Also indicate what actions you would take with regard to these stocks. Furthermore, place these results on Security Market Line.

Answer rating: 100% (QA)

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