At present, suppose the risk-free rate is 10 percent and the expected return on the market portfolio is 15 percent. The expected returns for four stocks are listed together with their expected betas.
Stock Expected Return Beta NIC 18% 1.3 EIC 14 0.8 UIC 16 1.1 NIBC 17 1.7
Required: a. Determine the required rate of return according to CAPM b. Based on the information given and your result in (a), which stocks are overvalued? Which are undervalued? c. If the risk-free rate were to rise to 12% and the expected return on the market portfolio rose to 16%, will the stock of NIC be overvalued or undervalued? (Assume the expected returns and the betas stay the same)
At present, suppose the risk-free rate is 10 percent and the expected return on the market portfolio is 15 percent. The expected returns for four stocks are listed together with their expected betas.
Stock Expected Return Beta NIC 18% 1.3 EIC 14 0.8 UIC 16 1.1 NIBC 17 1.7
Required: a. Determine the required rate of return according to CAPM b. Based on the information given and your result in (a), which stocks are overvalued? Which are undervalued? c. If the risk-free rate were to rise to 12% and the expected return on the market portfolio rose to 16%, will the stock of NIC be overvalued or undervalued? (Assume the expected returns and the betas stay the same)
5 answers
To get answer
student
6. At present, suppose the risk-free rate is 10 percent and the expected return on the market portfolio is 15 percent. The expected returns for four stocks are listed together with their expected betas.
Stock Expected Return Beta
NIC 18% 1.3
EIC 14 0.8
UIC 16 1.1
NIBC 17 1.7
Required:
a. Determine the required rate of return according to CAPM
b. Based on the information given and your result in (a), which stocks are overvalued? Which are undervalued?
c. If the risk-free rate were to rise to 12% and the expected return on the market portfolio rose to 16%, will the stock of NIC be overvalued or undervalued? (Assume the expected returns and the betas stay the same)
Stock Expected Return Beta
NIC 18% 1.3
EIC 14 0.8
UIC 16 1.1
NIBC 17 1.7
Required:
a. Determine the required rate of return according to CAPM
b. Based on the information given and your result in (a), which stocks are overvalued? Which are undervalued?
c. If the risk-free rate were to rise to 12% and the expected return on the market portfolio rose to 16%, will the stock of NIC be overvalued or undervalued? (Assume the expected returns and the betas stay the same)
For knowledge
4 answers