Need solution for question 1.

1) An analyst estimates the following CAPM Model for ECN Inc. [Enter % as whole number, i.e. 10% is 10]. (RECN Rp) = 2 + 1.55(Rm Rp) a) Suppose the market premium is expected to be 12% for the next year. If ECN Inc. has a current return of 20% and the risk-free rate is 1%, is this stock over- or under-valued. Assume the estimated model is true. b) A different analyst believes that macroeconomic factors, particularly monetary policy matters. To capture that she includes the federal funds rate (FFR) in her CAPM-based model. She estimates the following. [Enter % as whole number, i.e. 10% is 10]. (RecN Rp) = 1.5 + 1.40(Rm Rf) 0.25(FFR) Using the same information from part a) and the fact that the federal funds rate is expected to be 1%, is ECN Inc. over- or under-valued? c) Based on the model estimated in part b) would news that the Federal Reserve is conducting open market purchases like be good or bad for shareholders of ECN Inc? Briefly explain. d) Based on the model estimated b), briefly explain whether you think shares of ECN Inc. would be complements or substitutes for Treasury (US government) bonds. 1) An analyst estimates the following CAPM Model for ECN Inc. [Enter % as whole number, i.e. 10% is 10]. (RECN Rp) = 2 + 1.55(Rm Rp) a) Suppose the market premium is expected to be 12% for the next year. If ECN Inc. has a current return of 20% and the risk-free rate is 1%, is this stock over- or under-valued. Assume the estimated model is true. b) A different analyst believes that macroeconomic factors, particularly monetary policy matters. To capture that she includes the federal funds rate (FFR) in her CAPM-based model. She estimates the following. [Enter % as whole number, i.e. 10% is 10]. (RecN Rp) = 1.5 + 1.40(Rm Rf) 0.25(FFR) Using the same information from part a) and the fact that the federal funds rate is expected to be 1%, is ECN Inc. over- or under-valued? c) Based on the model estimated in part b) would news that the Federal Reserve is conducting open market purchases like be good or bad for shareholders of ECN Inc? Briefly explain. d) Based on the model estimated b), briefly explain whether you think shares of ECN Inc. would be complements or substitutes for Treasury (US government) bonds