Multiple Choice
Under/Over-Valued Stock A manager believes his firm will earn a 16 percent return next year. His firm has a beta of 1.5, the expected return on the market is 14 percent, and the risk-free rate is 4 percent. Compute the return the firm should earn given its level of risk and determine whether the manager is saying the firm is under-valued or over-valued.
A) 19%, under-valued
B) 19%, over-valued
C) 22%, under-valued
D) 22%, over-valued
Correct Answer:
Verified
Correct Answer:
Verified
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