Question
25. Two stocks, one high risk (Happy) and one low risk (Lonely), have been evaluated by...
25. Two stocks, one high risk (Happy) and one low risk (Lonely), have been evaluated by your company. Your stock analysis team has predicted estimated returns and beta risk in the table below for the two stocks and the market. Using this information, and the CAPM model, tell me if Happy is overvalued or undervalued and why that is the case. Then tell me if Lonely is overvalued or undervalued and why that is the case. Show your work in the uploaded document.
Est(R) Beta
Market .26 1.00
Happy .33 1.20
Lonely .14 0.75
The risk-free rate is 3%
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