Question: You believe that a particular stock has an expected return of 15%. The stocks beta is 1.2, the risk-free rate is 3%, and the expected

You believe that a particular stock has an of 15%. The stock’s beta is 1.2, the risk-free rate is 3%, and the expected market risk premium is 6%. Based on this, is your view that the stock is overvalued or undervalued?

Step by Step Solution

★★★★★

3.43 Rating (175 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock

R R f b E R m R f 3 12 6 102 Since ... View full answer

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Document Format (1 attachment)

428-B-C-F-R-A-R (690).docx

120 KBs Word File

Students Have Also Explored These Related Corporate Finance Questions!

A stock has an expected return of 13.4 percent, its beta is 1.60, and the risk-free rate is 5.5 percent. What must the expected return on the market be?

A stock has an expected return of 13.5 percent, its beta is 1.17, and the risk-free rate is 5.5 percent. What must the expected return on the market be?

A stock has an expected return of 14 percent, its beta is 1.45, and the expected return on the market is 11.5 percent. What must the risk-free rate be?

In equilibrium, DDD Inc. ' s stock has an expected return of 1 5 % , and its beta is 1 . 3 . What is the market risk premium if the riskfree rate is 4 % ?

45. What is the capital gains yield on a stock that cost 30 a year ago if it just paid a dividend of 1.50 a share and was sold today for 27? 46. What is the beta of a stock with an expected return of...

A firm just paid $ 0 . 5 0 in dividends, and expects to pay $ 0 . 7 5 , $ 1 . 0 0 , $ 1 . 2 5 , and $ 1 . 5 0 in dividends before it reaches constant growth of 6 % per year thereafter. Assume its...

46. What is the beta of a stock with an expected return of 15% given a risk-free rate of 2.3% and a market risk premium of 7.5%

A stock has a required return of 15%, the risk free rate is 4.5%, and the market risk premium is 4% a. What is the stock's beta? Round your answer to two decimal places b. If the market risk premium...

"BLACKFRIDAY* company is planning an expansion of its existing production capacity. The firm hired you as a consultant for the expansion project. Since you are a savvy project manager, you first...

) What do you mean by method study? Describe critical examination the facts -) Describe the following :- i) Observed Time ii) Normal Time ii) Standard Time

In a sample of 400 Internet subscribers taken in late 2000, 80% were connected by telephone, and the rest via cable modem. the rest via cable modem. At the end of 2001, the number of subscribers who...

DCR Inc can borrow dollars for five years at a coupon rate of 2 . 7 5 percent.

Russia is in the process of building a financial system along Western lines. What general advice would you give the Russians in doing this? What should they expect to be the benefits of a good...

Forecast Idekos free cash flow (reproduce Table 19.10), assuming Idekos market share will increase by 0.5% per year; investment, financing, and depreciation will be adjusted accordingly; and the...

Reproduce Idekos balance sheet and statement of cash flows, assuming Idekos market share will increase by 0.5% per year; investment, financing, and depreciation will be adjusted accordingly; and the...

What is the output of the following program when the method is called with 5? void unknown(int n) if (n>0) unknown(n-1); System.out.print("?"); a. ???? b. ????? c. ?????? d. None of the above

Part Quality Supplier Good Minor Defect Major Defect A 100 5 8 B 160 27 4 C 150 11Chi Square - Test of Independence ChiSquare - Test of Independence Question 20 (4 points) DATA contains Part Quality...

Cori's Meats is looking at a new sausage system with an installed cost of $475,000. This cost will be depreciated straight-line to zero over the project's five-year life, at the end of which the...