Under/Over Valued Stock A manager believes his firm will earn a 17.1 percent return next year. His firm has a beta of 1.61, the expected return on the market is 15.1 percent, and the risk-free rate is 5.1 percent. Compute the return the firm should earn given its level of risk and determine whether the manager is saying the firm is under-valued or over-valued.
25.311%, under-valued
21.2%, over-valued
25.311%, over-valued
21.2%, under-valued