A manager believes his firm will earn a 1650 percent return, Financial Management

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A manager believes his firm will earn a 1650 percent return

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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Financial Management: A manager believes his firm will earn a 1650 percent return

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Financial Management: A manager believes his firm will earn a 1650 percent return

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