A manager believes his firm will earn a 18.80 percent return next year. His firm has a beta of 1.82, the expected return on the market is 16.20 percent, and the risk-free rate is 6.20 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.
Undervalued
Overvalued