tock of Devas Ltd has Risk-free rate of 8 percent, Beta of 0.7, Market return of 15 percent and expected return of 14 percent. What would be your recommendation for the stock a. Overpriced and Sell b. Overpriced and Buy c. Underpriced and Sell d. Underpriced and Buy
tock of Devas Ltd has Risk-free rate of 8 percent, Beta of 0.7, Market return of 15 percent and expected return of 14 percent. What would be your recommendation for the stock a. Overpriced and Sell b. Overpriced and Buy c. Underpriced and Sell d. Underpriced and Buy
Chapter8: Risk And Rates Of Return
Section: Chapter Questions
Problem 14PROB
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Risk and return
Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary.
Capital Asset Pricing Model
Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.
Question
Stock of Devas Ltd has Risk-free rate of 8 percent, Beta of 0.7, Market return of 15 percent and expected return of 14 percent. What would be your recommendation for the stock
a.
Overpriced and Sell
b.
Overpriced and Buy
c.
Underpriced and Sell
d.
Underpriced and Buy
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