Under/Over Valued Stock A manager believes his firm will earn a 11.35 percent return next year. His firm has a beta of 1.39, the expected return on the market is 8.9 percent, and the risk-free rate is 3.9 percent. Compute the return the firm should earn given its level of risk and determine whether the manager is saying the firm is under-valued or over-valued.
10.85%, over-valued
16.271%, over-valued
10.85%, under-valued
16.271%, under-valued