You are evaluating the expected performance of two stocks, Alibaba and Bank of China. You gathered the following information Risk-free rate = 5% Expected return for a Hong Kong market = 11.5% Beta of Alibaba = 1.5 Beta of Bank of China = 0.8 Based on your analysis, you forecast the return on these 2 stocks are 13.25% for Alibaba and 11.25% for Bank of China. i) Calculate the required rate of return for Alibaba and Bank of China ii) Indicate whether each stock is undervalued, fairly valued or overvalued.

You are evaluating the expected performance of two stocks, Alibaba and Bank of China. You gathered the following information Risk-free rate = 5% Expected return for a Hong Kong market = 11.5% Beta of Alibaba = 1.5 Beta of Bank of China = 0.8 Based on your analysis, you forecast the return on these 2 stocks are 13.25% for Alibaba and 11.25% for Bank of China. i) Calculate the required rate of return for Alibaba and Bank of China ii) Indicate whether each stock is undervalued, fairly valued or overvalued.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter2: Risk And Return: Part I

Section: Chapter Questions

Problem 4P: An analyst has modeled the stock of a company using the Fama-French three-factor model. The market...

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