Risk Appropriate Level of Return = Rf + β(Rm- Rf)
Where Rf is the risk free rate of return
Rm is the market Return
Risk Appropriate Level of Return = 5.40% + 0.64(14.4% - 5.40%)
= 11.16%
Risk Appropriate Level of Return is 11.16%
Firm is Under-Valued because Risk Appropriate level of Return < Expected Return
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