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Under-/Overvalued Stock
A manager believes his firm will earn a 16.50 percent return next year. His firm has a beta of 1.65, the expected return on the market is 10.70 percent, and the risk-free rate is 4.70 percent.
Compute the return the firm should earn given its level of risk.
Required return %
Determine whether the manager is saying the firm is undervalued or overvalued.
Overvalued
Undervalued
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