Under/Over Valued Stock A manager believes his firm will earn a 11.20 percent return next year. His firm has a beta of 1.38, the expected return on the market is 8.8 percent, and the risk-free rate is 3.8 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.
Multiple Choice
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