Homework Answers
rate positively ..
| Based on CPAM we have to compute the required rate | ||||||||
| required rate = Risk free rate + market risk premium*Beta | ||||||||
| $1 discount store= | 4%+6%*1.5 | |||||||
| 13.00% | ||||||||
| Every thing $ 5= | 4%+6%*1 | |||||||
| 10.00% | ||||||||
| We see that forecasted return is lower compared to CAPM . Therefore both the stock is overpriced | ||||||||
| Company | Answer = | |||||||
| $1 discount store | Overpriced | |||||||
| Every thing $ 5 | Overpriced | |||||||
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