A company’s stock return has a standard deviation of 12%. The correlation coefficient between the stock and S&P 500 Index is 0.6. S&P 500 Index has an expected return of 11% and a standard deviation of 5%. Currently T-bill rate is 5%.
What is the beta of the stock? Suppose that the expected return on the stock is 11%. According to the CAPM, is the stock underpriced or overpriced?