Question

A stock has a beta of 2.0. A security analyst who specializes in studying this stock expects its return to be 24%. Suppose the risk-free rate is 6 percent and the market-risk premium is 10 percent. Is the stock overvalued or undervalued relative to the market’s expectation? use the CAPM
a) What is the market expected return on stock A based on the CAPM?
(b) Is the stock overvalued or undervalued? Yes or no.

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