That is it.....Think of it this way......the capm is the required return...as you have shown above the expected is above required..therefore you would buy the "undervalued" stock.
Note: to avoid confusion,,,,,you now have the 11 & 10% the different way from your first post in this thread.
Edited 1 time(s). Last edit at Tuesday, May 3, 2011 at 03:35PM by perdition.
overvalued. you're only getting 10% when CAPM is calling for 11%. the alpha is -1, per your 1st post. if the alpha is positive, per your 2nd post, then it will undervalued and should be bought.
Edited 1 time(s). Last edit at Tuesday, May 3, 2011 at 03:39PM by jgrandits.