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)As an equity analyst, you have developed the following return forecasts Problem 3 0 and risk estimates for two different stock mutual funds (Fund T and Fund U): Forecasted Return CAPM Beta Fund T Fund U 9.00% 1.20 10.00% 0.80 If the risk-free rate (RFR) is 3.9% and the expected market risk premium (ie, E(R) – RFR) is 6.1%, calculate the expected return for each mutual fund according to the 3.а. CAPM. 3.b. Decide which fund is overvalued, undervalued or properly valued and explain why?

)As an equity analyst, you have developed the following return forecasts Problem 3 0 and risk estimates for two different stock mutual funds (Fund T and Fund U): Forecasted Return CAPM Beta Fund T Fund U 9.00% 1.20 10.00% 0.80 If the risk-free rate (RFR) is 3.9% and the expected market risk premium (ie, E(R) – RFR) is 6.1%, calculate the expected return for each mutual fund according to the 3.а. CAPM. 3.b. Decide which fund is overvalued, undervalued or properly valued and explain why?

EBK CONTEMPORARY FINANCIAL MANAGEMENT
EBK CONTEMPORARY FINANCIAL MANAGEMENT
14th Edition
ISBN:9781337514835
Author:MOYER
Publisher:MOYER
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 20P
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Problem 3 )As an equity analyst, you have developed the following return forecasts and risk estimates for two different stock mutual funds (Fund T and Fund U): Forecasted Return CAPM Beta Fund T 9.00% 1.20 Fund U 10.00% 0.80 If the risk-free rate (RFR) is 3.9% and the expected market risk premium (i.e., E(Ra) – RFR) is 6.1%, calculate the expected return for each mutual fund according to the 3.а. САРМ. 3.b. Decide which fund is overvalued, undervalued or properly valued and explain why?
Transcribed Image Text:Problem 3 )As an equity analyst, you have developed the following return forecasts and risk estimates for two different stock mutual funds (Fund T and Fund U): Forecasted Return CAPM Beta Fund T 9.00% 1.20 Fund U 10.00% 0.80 If the risk-free rate (RFR) is 3.9% and the expected market risk premium (i.e., E(Ra) – RFR) is 6.1%, calculate the expected return for each mutual fund according to the 3.а. САРМ. 3.b. Decide which fund is overvalued, undervalued or properly valued and explain why?
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