Your neighbor is a security analyst. He has conducted hisresearch about some stocks in Karachi (name ofcity) Stock Exchange (KSE) and his findings are as follows:
Stock A will have a return of 18%, stock B will have a return of20 % and stock C will have a return of 22%, but his findings do notinvolve the CAPM.
You are a business graduate and when you have used CAPM, you havecome to know that:Stock A's expected return is 15.50%, Stock B'sexpected return is 24.63% and Stock C's expected return is25.39%.
In your opinion, whether the KSE has over-priced or under-pricedeach stock and in the light of these results, which of these stocksare suitable for investment?