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Determine the required return of each stock

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Assume the risk-free rate is 4% and the expected return on the market portfolio is 14%. The expected returns and betas for four stocks are listed below:

Stock                Expected Return                     Beta

E                            15%                             1.2

F                             5%                             -0.4

G                            10%                               0.6

H                            20%                                 1.8

Question a. Using the Capital Asset Pricing Model (CAPM), determine the required return of each stock.

Question b. Which stocks are overvalued or undervalued in the market? Why?

Reference no: EM132484947

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