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Under/Over Valued Stock A manager believes his firm will earn a 16.2 percent return next year. His firm has a beta of 1.52, the expected return on the market is 14.2 percent, and the risk-free rate is 4.2 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.
22.584%, over-valued
19.4%, over-valued
19.4%, under-valued
22.584%, under-valued
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