Garten Testing, Inc. The risk-free rate is 5.5 percent, the expected return on the market is 12.8 percent, and the betas of the two stocks are 1.7 and 0.9, respectively. Stevens’s own forecasts of the returns on the two stocks are 17.00 percent for Furhman Labs and 11.50 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.)
b. Is each stock undervalued, fairly valued, or overvalued?
Furhman Labs?
undervalued
fairly valued
overvalued
Garten Testing?
undervalued
fairly valued
overvalued