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Forecast Stock Returns Using CAPM

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(5 points) An analyst is forecasting returns as follows: (a) Assuming the analyst believes the CAPM holds, what beta does he believe each stock has? (b) What are the expected returns of the two stocks? (c) If the T-bill rate is 2%, what are the required rate of returns for the two stocks? Is either undervalued? (d) Draw the SML (security market line). Specify the slope, the intercept, and the point where =1..

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(5 points) An analyst is forecasting returns as follows: (a) Assuming the analyst believes the CAPM holds, what beta does he believe each stock has? (b) What are the expected returns of the two stocks? (c) If the T-bill rate is 2%, what are the required rate of returns for the two stocks? Is either undervalued? (d) Draw the SML (security market line). Specify the slope, the intercept, and the point where =1.

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