A stock is in equilibrium if its expected return its required return. In general, assume that markets and stocks are in equilibrium (or fairly valued), but sometimes investors have different opinions about a stock's prospects and may think that a stock is out of equilibrium (either , Stock B is undervalued or overvalued). Based on the analyst's expected return estimates, Stock A is and Stock C is in equilibrium and fairly valued.
A stock is in equilibrium if its expected return its required return. In general, assume that markets and stocks are in equilibrium (or fairly valued), but sometimes investors have different opinions about a stock's prospects and may think that a stock is out of equilibrium (either , Stock B is undervalued or overvalued). Based on the analyst's expected return estimates, Stock A is and Stock C is in equilibrium and fairly valued.
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 15P
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