As per CAPM framework
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MMB has common stock has a beta of 1.5. A security analyst forecasts an expected return of 15% over the next year. The market risk premium is 8% and the risk free rate is 4%. In a CAPM framework, does the analyst believe that Fenway common stock is fairly priced?
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Solution Summary
The CAPM framework is assessed.
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As per CAPM framework the
Return on equity= Risk free rate + Beta*( Risk Premium)
=4%+1.5*8%
=16%
No the analyst doesn't believe that ...
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