Firm is under-valued or over-valued

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Reference no: EM131359005

Under/Over Valued Stock A manager believes his firm will earn a 17.0 percent return next year. His firm has a beta of 1.60, the expected return on the market is 15.0 percent, and the risk-free rate is 5.0 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.

A) 25.000%, under-valued

B) 21.0%, under-valued

C) 21.0%, over-valued

D) 25.000%, over-valued

Reference no: EM131359005

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