Landon Stevens is evaluating the expected performance of two common stocks, Furhman Labs, Inc., and Garten Testing, Inc. The risk-free rate is 5.2 percent, the expected return on the market is 12.2 percent, and the betas of the two stocks are 1.4 and 0.9, respectively. Stevens’s own forecasts of the returns on the two stocks are 16.40 percent for Furhman Labs and 11.20 percent for Garten.
a. Calculate the required return for each stock. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)
Furham Labs %
Gardentesting %
b. Is each stock undervalued, fairly valued, or overvalued?