Any help would be appreciated - thanks!
Portfolio beta is equal to weighted average beta
=1.5*20%+ 1.1*15% + 0.5*65%
= 0.79
Expected return as per CAPM = risk free rate + beta*market risk premium
=4% +0.79*5.5%
= 8.345%
Change = 8.54% - 8.345%
= 0.195 percentage points
I.e. 0.19 percentage points
He expects return to be 9.85% while CAPM return is 8.345%
Hence, he thinks the stock is
Undervalued
Will increase
Since higher beta will lead to higher portfolio beta and hence higher required return
Any help would be appreciated - thanks! Brandon is an analyst at a wealth management firm. One of his clients holds a $...
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