Home Interior's stock has an expected return of 13.25 percent and a beta of 1.4. The market return is 10.75 percent and the risk-free rate is 4.5 percent. This stock is _____ because the CAPM return for the stock is _____ percent.
Added by Dennis G.
Step 1
5% + 1.4 x (10.75% - 4.5%) CAPM return = 4.5% + 1.4 x 6.25% CAPM return = 4.5% + 8.75% CAPM return = 13.25% We can see that the CAPM return for the stock is the same as its expected return, which is 13.25%. Show more…
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