Homework Answers
Risk Premium = Beta ( Market Ret - RIsk Free Ret )
= 0.94 ( 11% - 3%)
= 0.94 * 8%
= 7.52%
10-20:
Required Ret = Risk free Ret + Beta [ Market ret - Risk free ret ]
= 5% + 1.2 [ 11% - 5% ]
= 5% + 1.2 [ 6% ]
= 5% +7.2%
= 12.2%
Actual ret is 14%
Required Ret = 12%
Actual ret > Required Ret, firm is under Valued.
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