The following information are available for stock B and the market portfoli...
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The following information are available for stock B and the market portfolio:
| Market Portfolio | Stock B | ||
E[R] (% p.a.) | 8 | 15 | ||
σ (% p.a.) | 15 | 30 | ||
ρi,M | - | 0.5 |
ρi,M ... Correlation between stock i and the market portfolio.
The risk free rate is 4% p.a.
Task: According to the CAPM the expected return of stock B should be 8 % p.a. Is in this case stock B undervalued or overvalued according to the CAPM?
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