Which one is a better buy

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Analysts have evaluated the expected returns of IBM and HP stocks based on the revenues and earnings forecast for the upcoming 12 months. IBM has an expected return of 11.2% and risk of beta = 0.9, while HP has an expected return of 12.7% and beta = 1.3. The market risk premium is 7% and the T-Bill rate is 4%.

According to CAPM, how do you valuate these two stocks? Which one is a better buy?

 

Reference no: EM13295891

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