The firm is under-valued or over-valued

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Reference no: EM131904321

1. Under/Over Valued Stock A manager believes his firm will earn a 17.2 percent return next year. His firm has a beta of 1.62, the expected return on the market is 15.2 percent, and the risk-free rate is 5.2 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.

21.4%, over-valued

25.624%, under-valued

25.624%, over-valued

21.4%, under-valued

2. USNet, Inc., an American networking equipment firm, sells CAD12.5 million worth of networking gear to a Canadian telecom company. The term of the transaction calls for a payment of CAD 12.5 million to be paid immediately. Canadian interest rate is 5% per year, and the US interest rate is 2%. How much is USNet’s transaction exposure?

CAD 0

CAD 12.75 million

CAD 12.5 million

CAD 13.125 million

Reference no: EM131904321

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