Based on five years monthly data, you derive the following information for the companies listed:
Company s (standard deviation) rim (Correlation) Estimated Return (Er)
Prime 12.10% 0.72 20%
ACE 14.60% 0.33 15%
NIC 7.60% 0.55 19%
NEPSE (m) 5.50% 1
i. Compute beta coefficient for each stock/company. (30)
ii. Assuming a risk free rate is 8% and expected return for the market portfolio is 15%, compute required return for all the stocks (15)
iii. Indicate which stocks are undervalued or overvalued based on your calculation of required rate of return above. (10)