Under-/Overvalued Stock
A manager believes his firm will earn a 13.20 percent return next year. His firm has a beta of 1.34, the expected return on the market is 11.20 percent, and the risk-free rate is 2.20 percent.
Compute the return the firm should earn given its level of risk. (Round your answer to 2 decimal places.)
Required return %
Determine whether the manager is saying the firm is undervalued or overvalued.
Undervalued
Overvalued