Homework Answers
Hello,
| Risk free return | 5% | ||||
| Expected Return Market | 10% | ||||
| Security | E(return) | Beta | CAPM | Over/ under valuyed | |
| Stock X | 0.035 | 0.85 | 9.25000% | Over valued | |
| Stock Y | 0.095 | 1.2 | 11.00000% | Over valued | |
| Stock Z | 0.12 | 1.1 | 10.50000% | under valued |
| E(Return) | CAPM | |
| Stock X | 3.50% | 9.25% |
| Stock Y | 9.50% | 11% |
| Stock Z | 12% | 10.50% |
* If the stock is under valued stock should be buy position,
undervalued because of lack of awarness of that company
* if stock is overvalued they should be sell the stock.
* If the stock is failrly valued it should be Hold Position.
I hope this clear your doubt.
Feel free to comment if you still have any query or need something else. I'll help asap.
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