If the risk-free rate of return is 5 percent and the market risk premium is 6 percent, the most appropriate conclusions about the value of the common stocks of Easy Company and Bravo Enterprises, respectively, are:
The required rate of return for Easy is 5%+1.25(6%)=12.5%. The required return is greater than the estimated return, so the stock is overvalued. Brava's required rate of return is 5%+1(6%)=11% (because the beta is 1.0, the return is the same as the market). The required return is less than the estimated return, so the stock is undervalued.
发表于 2007-10-26 09:12
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