Comparing the expected and required returns

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Question - You are following five different stocks and need to issue a recommendation (buy, hold, or sell) to your customers. The market return is 10 percent, with a standard deviation of 15 percent. The risk-free rate is 3 percent. The CAPM is assumed to hold. Security Expected Return Standard Deviation Beta Recommendation ABC 15% 19% 1.6 RTS 10% 13% 1.15 DKF 8% 10% 0.65 OPL 9% 14% 0.8 WEQ 12% 16% 1.35 To determine the recommendations, begin by calculating the required returns for each security using the CAPM. Comparing the expected and required returns will indicate which securities are underpriced, overpriced, or correctly priced.

Reference no: EM133041525

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