Question: The expected return and betas for three stocks are given below: Stock EXPECTED RETURN (%) BETA A 11 1.4 B 9 1.2 C 10 1.7

The expected return and betas for three stocks are given below:

Stock EXPECTED RETURN (%) BETA
A 11 1.4
B 9 1.2
C 10 1.7

Market returns, R m, is 8% and risk-free rate is 3%. Which of the three stocks is undervalued according to the CAPM?

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